UPDATE 2-Brazil sees no demand for selling bonds back to Treasury amid market volatility

Recasts after press conference

BRASILIA, Dec 26 (Reuters) - Brazil's Treasury reported on Thursday that it observed no significant investor appetite for selling bonds back to the government during extraordinary operations conducted last week to address intense market volatility.

President Luiz Inacio Lula da Silva's administration unveiled a fiscal package at the end of November that disappointed investors, triggering a significant sell-off in Brazilian assets and fueling a spiraling depreciation of the currency in Latin America's largest economy.

Reflecting higher risk premiums seen by investors, Brazilian 5-year inflation-linked bonds were trading at real yields above 7% by late November, compared to 5.2% at the end of last year.

The Treasury carried out extraordinary bond purchase and sale auctions for three consecutive days last week.

However, the general coordinator for public debt operations, Roberto Lobarinhas, said in a press conference that there was no excessive appetite for selling bonds back to the Treasury.

"The auction results indicated a well-functioning market in technical terms, with bonds trading within normal ranges despite the ongoing price volatility," he said.

The interventions followed investor complaints demanding Treasury's actions, with many pointing out that the central bank's more recent hawkish stance amid the fiscal confidence crisis had left them with limited exit options in the bond market.

Earlier in December, policymakers raised interest rates by a greater-than-expected 100 basis points and pointed to matching hikes for the next two meetings.

Earlier on Thursday, the Treasury released its monthly report indicating that the federal public debt rose 1.85% in November from the previous month.

The total debt stock reached 7.204 trillion reais ($1.17 trillion), impacted by substantial interest costs and net issuance during the month.

Year-to-date, the federal public debt has grown 10.49%, adding 683.8 billion reais.

The average cost of domestic issuance increased to 10.86% per year in November, from 10.78% in October.

The Treasury's liquidity reserve, designed to provide flexibility in debt management during market volatility, rose 4.09% in nominal terms to 856.1 billion reais in November, enough to cover 7.25 months of obligations.

($1 = 6.1708 reais)

(Reporting by Marcela Ayres; Editing by Gabriel Araujo, Sarah Morland and Chizu Nomiyama)

((marcela.ayres@thomsonreuters.com; +55 11 5047-2444;))