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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.
"Certainly if you look at Brazil compared to other investment-grade sovereigns, (the Moody's review) was already priced in," said a syndicate banker covering the region.
Meanwhile Venezuelan bonds were ending as much as three points higher in price as it became clear the opposition has secured a supermajority in legislative elections.
Bonds issued by the sovereign and state-owned oil company PDVSA due 2027 were ending the day bid at 47.5 and 39.5 respectively, according to a second New York-based trader.
Argentine bonds were close to intraday highs after central bank chief Alejandro Vanoli resigned, reducing uncertainty over the direction of monetary policy a day before the country's next president, market-friendly Mauricio Macri, is due to assume office.
Chile kicked off meetings with fixed-income investors on Tuesday, laying the ground for a potential return to the international bond markets.
It hired Bank of America Merrill Lynch, Citigroup, HSBC and Santander to organize the meetings, which are being marketed as investor updates without mention of any specific transaction.
Argentina's E&P company Medanito selected Itau and UBS to take it on an international roadshow ahead of a possible capital markets transaction.
The company met fixed-income investors in London on Monday, Switzerland on Tuesday and New York on Wednesday. Expected rating is CCC+ by Fitch.
Pemex (Baa1/BBB+/BBB+) mandated Barclays and HSBC for an investor call that was scheduled for Wednesday.
Arcos Dorados, the largest McDonald's franchiser in South America, has finished Swiss road shows via Credit Suisse. The Argentina-based, NY-listed company is rated Ba3/NR/BB+.
Mexican white-goods manufacturer Controladora Mabe has finished investor meetings through Barclays, Bank of America Merrill Lynch, Citigroup and JP Morgan. Ratings are BB+/BB+.
Brazilian airline Gol (B3/B-/B-) has completed roadshows with Morgan Stanley, Credit Suisse and Citigroup. (Reporting by Davide Scigliuzzo; Editing by Marc Carnegie)