Bloomberg News

Brazil Rate-Futures Yields Decline on Slowing Growth; Real Falls

November 17, 2011

Nov. 17 (Bloomberg) -- Yields on most Brazilian interest- rate futures contracts declined after a report showed Latin America’s largest economy grew at its slowest pace in two years, bolstering bets the central bank will prolong its cycle of interest-rate cuts.

Yields on the contract due in January 2017 fell eight basis points, or 0.08 percentage point, to 10.77 percent. The real fell 0.5 percent to 1.7795 per dollar, from 1.7701 yesterday.

Traders increased wagers the central bank will continue lowering borrowing costs after economic activity, a proxy for gross domestic product, expanded 1.17 percent in September from a year earlier. The increase was lower than the median forecast of 1.25 percent among 14 analysts surveyed by Bloomberg.

“The economic data is showing a cooling in activity, and the fall in commodities supports a drop in the DI curve,” Andre Perfeito, chief economist at Sao Paulo-based Gradual Investimentos, said in a telephone interview.

Commodities as measured by the Standard & Poor’s GSCI index fell 2.9 percent, the most in eight weeks.

The real pared some losses after Standard & Poor’s said it upgraded Brazil’s credit rating one level, matching a move by Moody’s Investors Service earlier this year.

Rating Raised

S&P raised Brazil’s foreign-currency rating to BBB, the second-lowest investment grade, from BBB-, citing the country’s fiscal and monetary policies boost its ability to sustain growth. The outlook is stable. Brazil was upgraded to the equivalent Baa2 by Moody’s in June and to BBB by Fitch Ratings in April.

Banco Bradesco SA’s Chief Executive Officer Luiz Trabuco Cappi told reporters in New York the real will trade around 1.75 per dollar next year.

Central bank President Alexandre Tombini said yesterday that policy makers are contemplating further “moderate adjustments” to the benchmark Selic rate to offset a slowdown in global growth.

Policy makers led by Tombini cut the Selic rate to 11.5 percent from 12 percent last month, saying the weakening world economy will curb inflation, even with lower borrowing costs.

Traders are wagering that the central bank will cut rates by at least 50 basis points at each of its next three policy meetings, according to Bloomberg estimates based on interest- rate futures contracts.

“Tombini made it understood that 50 basis-point cuts will continue,” Luis Otavio de Souza Leal, chief economist at Banco ABC Brasil SA, said in a telephone interview from Sao Paulo.

The Brazilian government sold 305,000 out of 650,000 NTN-F notes offered at auction today and all the 5.5 million LTN bills offered, according to a preliminary statement posted on the Central Bank’s website.

--With assistance from Ye Xie and Fabiola Moura in New York. Editors: Brendan Walsh, Marie-France Han

To contact the reporters on this story: {Josue Leonel} in Sao Paulo at jleonel@bloomberg.net; {Gabrielle Coppola} in Sao Paulo at gcoppola@bloomberg.net

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


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