Bloomberg News

Brazil Rate Futures Yields Rise on China Growth, Commodities

July 13, 2011

July 13 (Bloomberg) -- Yields on Brazil’s interest-rate futures rose for the first time in four days on speculation stronger-than-expected economic growth in China will stimulate the Latin American country’s economy and lift commodity prices.

Yields on the interest-rate futures contract due in January 2013 rose three basis points, or 0.03 percentage point, to 12.72 percent at 9:44 a.m. New York time. The real was little changed at 1.5799 per dollar, from 1.5791 yesterday.

The economy in China, Brazil’s largest trading partner, grew 9.5 percent in the second quarter, after expanding 9.7 percent in the previous three months, the statistics bureau in Beijing said today. The median estimate was 9.3 percent in a Bloomberg survey of 18 economists. Commodity prices, as measured by a UBS Bloomberg index, rose 0.3 percent.

Brazil’s interest-rate “tightening cycle may be longer” than investors expected, said David Rocha, a fixed-income trader at Renascenca DTVM Ltda, in a telephone interview from Sao Paulo.

Yields on interest-rate futures contracts due in January rose one basis point to 12.49 percent, suggesting traders are betting the central bank will boost the benchmark interest rate to 12.75 percent by year-end, from 12.25 percent, according to data compiled by Bloomberg.

Brazil’s real has gained 25 percent in the past two years and touched 1.5524 per dollar on July 4, the strongest level since 1999.

Brazil’s government is considering raising a tax on currency futures contracts to contain the appreciation of the real against the U.S. dollar, Valor Economico reported, without saying where it got the information.

“Today’s data reinforces our view that concerns about an imminent ‘hard landing’ in China are overdone,” analysts led by Nick Chamie at RBC Capital Markets in Toronto wrote in a note today. Potential government measures to weaken the currency won’t change “the overall solid fundamentals of Brazil’s real,” they wrote.

--Editors: Glenn J. Kalinoski, Richard Richtmyer

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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