LATAM WRAP-Brazil bonds shrug off Moody's rating review
By Davide Scigliuzzo
NEW YORK, Dec 9 (IFR) - Brazilian bonds and credit default swaps were little changed Wednesday, even after Moody's initiated a review that could drop the sovereign's ratings into junk territory.
A review had already been widely priced in by the market, given Brazil's worsening economic picture and the opening of impeachment proceedings against President Dilma Rousseff.
Brazil's five-year credit default swaps widened by 5bp to 454bp-460bp shortly after the Moody's announcement but were still some 5bp tight on the day, according to Markit data.
Cash bonds also barely budged. After trading off 3/4 of a point after the announcement, they were ending little changed with the long end 1/4 point lower and the belly of the curve 1/4 higher in price, according to a New York-based trader.
"People were just selling because of the headline, but I have actually seen better buying today from clients," the trader told IFR.
A Moody's downgrade to junk would be the second to hit the sovereign this year, after Standard & Poor's lowered its rating on Brazil to BB+ in September.
Two junk ratings would likely spur forced selling from investors not allowed to hold securities rated below investment-grade by at least two agencies in their portfolios.
Still, many participants say the market has already comes to terms with that. Continuación...