UPDATE 2-Brazil bonds, swaps hit by junk downgrade
(UPDATES throughout, CHANGES byline)
By Hillary Flynn and Davide Scigliuzzo
NEW YORK, Dec 16 (IFR) - Brazil's sovereign bonds and credit default swaps widened dramatically Wednesday after Fitch stripped the country of its investment-grade credit rating and lowered it to junk.
The widening reflected deepening worries about Brazil, where months of political turmoil and a corruption scandal at state oil giant Petrobras have hampered efforts to revamp the economy.
Finance Minister Joaquim Levy said that Fitch's downgrade to BB+ was "serious" and remained silent when reporters asked if he would continue to keep his job.
S&P demoted Brazil to BB+ in September, and while a second downgrade had already been priced in by much of the market, the sovereign's bonds and CDS still took a hit in secondary trading.
Five-year CDS - a measure of the cost to insure bonds against a default - became more expensive, widening 37bp to a mid-price of 491bp.
Meanwhile Brazil's US dollar bonds were 2.5 to 3.5 points lower at midday after dropping as much as 4 points on the news, one LatAm bond trader in New York told IFR.
"The sovereign is getting hit hard but we are bouncing off the lows," he said. Continuación...