Bloomberg News

Brazilian Swaps Rates Rise as May Economic Gauge Beats Forecast

July 12, 2012

Brazil’s swap rates rose from a record low as traders pared bets on further cuts in borrowing costs after a report showed economic activity fell in May less than forecast.

The swap rates earlier touched a record low on speculation the central bank would sustain the pace of reductions after lowering the benchmark Selic by a half-percentage point to a record 8 percent yesterday.

“The economic activity report brought a little relief,” Luis Otavio de Souza Leal, chief economist at Banco ABC Brasil SA, said by phone from Sao Paulo. “The forecasts of the market were very negative.”

Swap rates maturing in January 2014 rose five basis points, or 0.05 percentage point, to 7.69 percent at 6:30 p.m. in Sao Paulo after touching a record low of 7.61 percent earlier. The real was little changed at 2.0375 per dollar as it pared declines of as much as 0.7 percent.

Economic activity fell 0.02 percent in May from the prior month, the central bank said today. The median forecast of economists in a Bloomberg survey was for a 0.4 percent drop.

Central bank board members voted unanimously yesterday to lower the target lending rate for an eighth straight time, saying economic “fragility” abroad is leading to slower inflation in Latin America’s biggest country. The central bank has lowered the benchmark by 4.5 percentage points since August, the most among the Group of 20 nations.

Bids Rejected

Brazil rejected all offers for floating-rate bonds maturing in 2018 at an auction, marking the first time Treasury officials turned down all bids on such securities in eight years.

The last time the government accepted no offers on floating-rate bonds, known as LFTs, was at an auction in July 2004, according to data compiled by the Treasury.

The government sold zero-coupon bonds, known as LTNs, at today’s auction. It issued bonds due in January 2016 at an average yield of 8.83 percent, bonds due in July 2014 at 8.01 percent and securities due in April 2013 to yield 7.36 percent, according to a statement on the central bank’s website.

To contact the reporters on this story: Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net Marisa Castellani in Sao Paulo at mcastellani7@bloomberg.net

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


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