Brazil Bonds Fall as Lula Gains in Election Survey
By Gavin Serkin
London, Sept. 23 (Bloomberg) -- Brazil's bonds plunged on concern the country may default on its debt after opposition presidential candidate Luiz Inacio Lula da Silva widened his lead over his nearest rival in an opinion poll.
Support for Lula, the Workers' Party candidate, rose to 44 percent, putting him 25 points ahead of ruling party candidate Jose Serra, according to a survey conducted Sept. 19 to Sept. 20 by the Datafolha polling institute, published yesterday. If Lula receives more than half the valid votes in the first vote, the election won't go to a second round.
''The markets are very nervous,'' said Jerome Booth, who helps manage $1.6 billion in investments for Ashmore Investment Management Ltd. in London. ''People are worried that Lula might win in the first round.''
Investors are concerned Lula's spending plans will impede Brazil's prospects for paying its 1.1 trillion reais ($330 billion) debt, prompting a default by South America's biggest economy. The former metalworkers union leader in the past has advocated a default. He has since promised to keep inflation low, rein in spending and pay all obligations.
Brazil's 8 percent bond maturing 2014 fell 2.31 cents, or 4.3 percent, to 52.125 cents bid and 52.5 cents offered, pushing the yield to 24.1 percent, according to J.P. Morgan Chase & Co. prices as of 10:51 a.m. London time.
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Brazilian assets have slid by almost a third since March on concern Lula would seek to spur the economy by stepping up government spending and cutting interest rates, moves that would spark inflation and prompt a default.
''Lula is getting in,'' said Mark Mobius, who manages about $7 billion of emerging market assets at Templeton Asset Management Ltd. ''There is going to be a default. The only question now is: can it be done in a controlled manner?''
On Friday, the benchmark 8 percent bond that matures in 2014 gained 1.11 cents on the dollar to 54.35, yielding 22.84 percent at 5.11 p.m. New York time after a poll by the Ibope polling agency showed Lula losing voters' support. The currency strengthened 1.5 percent to 3.4025 per dollar.
Declines in Brazil's bonds and currency boost the cost of servicing Brazil's public debt, four-fifths of which is tied to the dollar or interest rates. Debt has tripled in eight years as President Fernando Henrique Cardoso financed deficits and took over the debts of state-owned industries.
Datafolha, which questioned 3,718 Brazilian voters, said the survey has an two-point margin of error. |
