Bloomberg News

Peru Bond Risk Dips Below Brazil in Region-Beating Rally

March 15, 2012

Peru’s bond risk fell below Brazil’s for the first time in three months as prospects President Ollanta Humala will push through record mining investment spurs the region’s biggest credit-default swap rally.

The cost of insuring Peruvian debt against non-payment for five years fell 29 basis points, or 19 percent, in the past month to 122.6 while Brazil slid 19 basis points, or 14 percent, to 122.8, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The last time Peru traded below Brazil was Nov. 28.

Peru outperformed regional peers after Humala, a former army rebel who once vowed to make the state a partner in all natural resource projects, took measures to quell protests that forced Newmont Mining Corp. (NEM) to suspend construction of its Minas Conga gold mine. The swaps traded to a seven-week high on Nov. 25 as the protests threatened a pipeline of $50 billion in mining investments in the next decade.

“Concerns over whether Conga is going to go ahead or not have eased somewhat,” said Francisco Rodriguez, senior Andean economist at Bank of America in New York. “That reestablishes confidence.”

Humala, a one-time ally of Venezuelan President Hugo Chavez, won a June 5 runoff election on pledges to boost mining royalties and enlarge state control of the nation’s energy industry.

Peru’s stocks and bonds rallied after he asked central bank President Julio Velarde to remain in his post and appointed a cabinet of economists and businessmen.

Humala responded to the anti-mining protests by declaring a state of emergency, bringing in a former military instructor to lead a revamped cabinet and commissioning a project review to reassure residents that water resources won’t be depleted.

To contact the reporters on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net; John Quigley in Lima at jquigley8@bloomberg.net

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


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