Asset prices in Brazil will continue to sell off following the re-election of President Dilma Rousseff, with the local rate curve gaining additional room to steepen, Credit Suisse Securities analyst Daniel Chodos said in a client note on Monday. Yields on the so-called DI interest rate curve between Jan. 2016 and Jan. 2021 have climbed since mid-October. In the note, Chodos said most of the move will stem from a rally in the short end of the curve, which as of last week was pricing in more than 2 percentage points of hikes for the next year. The long end, on the other hand, "is likely to sell off and remain volatile," according to the note.
The announcement of Rousseff's planned cabinet nominations for her next four-year term, which are expected in coming weeks, "will become the next risk factor for markets," Chodos added. In particular, the announcement of her new economic policymaking team could "set the tone and market direction in the medium term in Brazil," the note said.