NEW YORK, March 15 (IFR) - Brazil bond prices plunged on Tuesday after former president Luiz Inacio Lula da Silva reportedly accepted a cabinet post, which could protect him from a money-laundering investigation.
The sovereign's new 2026s were being quoted at 96.50-97.00 in early afternoon trading, marking a 2.25 point drop from where the bonds priced just last week.
It was Brazil's first bond deal since 2014, taking advantage of a rally sparked by hopes that the country's ruling party would soon lose its grip on power.
Charges of money laundering against Lula were seen as a further blow to President Dilma Rousseff, increasing impeachment risks for the unpopular head of state.
The country's 2025s enjoyed an eight point rally between February 12 and March 11 to a recent high of 89.40 as talk grew about corruption allegations against Lula, Rousseff's mentor.
Hopes are that a change of regime will do much to move the country forward and bring it out of the political gridlock that has prevented lawmakers from addressing an economic slump.
The 2025s had slipped to 86.96 on Tuesday, according to Thomson Reuters data, as markets voiced frustration over what was seen as an attempt to protect Lula from prosecution.
"It is an acceptance of guilt," one trader said. "They are trying to force the process to go to the Supreme Court, which has favored the government lately."
Brazilian corporate bonds also fell, with the 2024s of state-owned oil company Petrobras dropping about half a point to reach 76.50-77.50.
Some think Brazilian asset prices were set for a sell-off after enjoying a strong rally earlier this month.
"It may be vulnerable to some profit-taking after such impressive gains," one strategist told IFR. (Reporting by Paul Kilby; Editing by Marc Carnegie)