Brazilian investment banks and funds are working hard to encourage growth in the secondary bond sector in 2012, Nasdaq reported.

The secondary market hasn’t developed partly due to high interest rates and short-term government bonds. According to Brazilian treasury figures, the average term for government bonds as of November was 40 months. The bonds were paying an average annual interest rate of 12.6%.

On Wednesday Brazil’s central bank reduced its Selic base interest rate to 10.5% and most financial market analysts expect more rate cuts to come with it settling between 9.0% and 10.0%.

“That's our opportunity to expand market choices," said Marcelo Giufrida, president of the Brazilian Capital Markets Association (ANBIMA).

ANBIMA is preparing the ground for longer term corporate debt in two ways, according to the association's general manager, Luiz Kaufman. One is creation of a new forum for bond issues; the other is a data collection project that will allow investors to track their bond positions day-to-day.

The forum is called the New Fixed-Income Market and according to Kaufman is modelled on the Brazilian Stock Market's Novo Mercado’s strict corporate governance rules.

"The new market mechanism for bonds aims at encouraging longer-term issues," said Kaufman. Rules include a minimum four-year term, a no-repurchase rule for the first two years, a ban on indexing of coupon rates and a minimum of at least ten investors with no single investor holding more than 20% of the issue.

ANBIMA is also developing a new statistical service that will allow investors to obtain daily mark-to-market quotes for their bond holdings.

"We are working with international price vendors on developing the methodology for price determination and distribution," said Kaufman.

ANBIMA expects Brazilian capital market operations to grow in 2012 roughly in tandem with Brazil's expected economic expansion of 3.0% to 3.5%.