Guess all that's left are downgrades now?
Brazil Benchmark Bond Sinks to 7-Week Low on J.P. Morgan's Call
Feb. 2 (Bloomberg) -- Brazil's benchmark bond fell to a seven-week low after J.P. Morgan Chase & Co. told investors to reduce their holdings of the country's fixed-income securities.
The declines, which led a region-wide drop, follow a tumble last week from record highs that was sparked by the central bank's unexpected decision to halt seven months of interest-rate cuts. Joyce Chang, head of emerging market research at J.P. Morgan, the second-largest U.S. bank, said investors should reduce their ``overweight'' position in Brazilian debt because a slower pace of rate cuts will crimp economic growth.
``Investors are no longer selling to just lock in gains; they are now selling to prevent losses,'' said Jeffrey Kaufman, who manages more than $1 billion of emerging market debt, including Brazilian bonds, for Putnam Investments in Boston. He said he reduced holdings of emerging market debt, including Brazilian bonds, during the recent rally.
Brazil's benchmark bond due 2040 fell 1.5 cents on the dollar to 107.25, the lowest since Dec. 12, at 4:30 p.m. in New York, according to J.P. Morgan. The price has fallen more than 9 cents since Jan. 27, pushing the yield up 85 basis points, or 0.85 percentage point, to 10.24 percent.
The declines halt a 16-month rally that had pushed the price of the 2040 bond up from 42 cents in September 2002.
Peruvian and Colombian also sank today, driving J.P. Morgan's EMBI+ emerging-market bond index down 1 percent.
S&P on Hold
At the peak of the rally on Jan. 28, the yield on Brazil's 10.25 percent bond due in 2013 fell to 8.2 percent, less than the 8.26 percent yield on Colombia's 10.75 percent bond due the same year. Colombia's debt is rated BB by Standard & Poor's, two levels above Brazil's B+ rating, a sign that investors were anticipating S&P would raise Brazil's rating amid the economic recovery.
David Beers, managing director and head of sovereign and international ratings at S&P, damped those expectations, saying today that the positive outlook that S&P has on Brazil's rating doesn't mean an increase in the rating is imminent.
``You shouldn't suppose that the positive outlook means an upgrade will happen this year or indeed that it will ever happen,'' Beers told reporters in London. ``It will depend on a set of reform'' measures, including legislation granting the central bank autonomy.
Even after four-day plunge in prices, Brazilian bonds are still the second-best performing bonds in the past 12 months, according to the 76 J.P. Morgan Chase indexes tracked by Bloomberg. In that time, the J.P. Morgan EMBI+ index for Brazil has returned 71 percent.
``In the context of where it has come from, it is not a significant sell-off,'' said John Yonemoto who manages bonds for Darby Overseas Investors Ltd. a unit of Franklin Resources Inc., in Washington. ``Brazil is also the one country that virtually everyone was overweight.'' |
