UPDATE 1-Brazil 5-yr CDS jump to 7-yr high, dollar bonds tumble 2-3 cents
(Updates, adds bond prices, quotes)
LONDON, Sept 24 (Reuters) - Brazilian debt insurance costs jumped to their highest in almost seven years on Thursday and sovereign dollar bonds fell 2-3 cents across the curve on fears of a deepening political and financial crisis.
Other emerging assets also sold off as world stocks slid towards two-year lows but the biggest losses came in Brazil where the real currency fell another 1.5 percent to fresh record lows, shrugging off central bank interventions.
Five-year credit default swaps (CDS) rose 33 basis points from the previous close to 513 bps, according to data from Markit. The CDS have risen almost 200 bps since the end of August and last traded above 500 bps in October 2008.
"Brazil is in a deep economic, currency and confidence crisis. The decline in the currency is unprecedented, similar to the collapse of the (Russian) rouble last year ... accordingly CDS are jumping and bond yields are rising," said Bernd Berg, a strategist at Societe Generale in London.
Investors have been spooked by news that Brazilian retailer General Shopping has deferred coupon payments on $150 million of subordinated debt and offered creditors a 50 percent write-down on another debt tranche.
The fear is that another rating agency will follow Standard & Poor's example and cut Brazil's credit rating to junk, forcing many global funds to dump its bonds from their portfolios. Brazilian dollar bond yield spreads over U.S. Treasuries widened 15 bps to 506 bps on the EMBI Global index while dollar bonds maturing 2040 and 2045 fell 3.875 cents and 2.8 cents respectively, according to Tradeweb .
The broader EMBIG index saw spreads widen 10 bps to 455 bps, the widest in a month.
A 2020 dollar bond issued by state-run oil firm Petrobras fell 3.3 cents while a 2040 issue lost 2 cents.
According to calculations by the Bank for International Settlements (BIS), Brazilian non-financial borrowers owe over $300 billion in dollar-denominated debt, double the 2008 levels and amounting to almost a fifth of gross domestic product.
"With private sector spending slowing sharply, commodity prices in retreat and manufacturing activity contracting, producers across large swathes of the economy are likely to find it increasingly hard to pay their bills in the coming months," said Michael Henderson, head of economics at Verisk Maplecroft. (Reporting by Sujata Rao; Editing by Ruth Pitchford)
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