June 1, 2017 / 9:41 PM / a year ago

EMERGING MARKETS-Yields on Brazil rate futures rise on bets of slower rate cuts

 (Updates prices)
    By Bruno Federowski
    SAO PAULO, June 1 (Reuters) - Yields paid on Brazilian
interest rate futures rose on Thursday after the central bank
said it was ready to slow the pace of rate cuts amid a growing
political crisis.
    Corruption allegations against President Michel Temer which
could cost him his mandate have threatened to derail his agenda
of structural reforms, which fueled bets on a rapid rate of
policy easing.
    In a statement announcing a widely expected 100 basis-point
cut in the benchmark Selic rate after the market close on
Wednesday, the bank said a "moderate reduction" in the pace of
rate cuts would likely be appropriate at its July meeting.

    Rate-future prices indicated a 20 percent chance of a lower
75 basis-point cut next month, traders said, with an 80 percent
probability of a 100 basis-point reduction. Before the
statement, investors had speculated the bank could even
accelerate rate cuts in July to a brisk 125 basis-point pace.
    The Brazilian real and the Mexican peso both
weakened, hurt by growing expectations of a U.S. rate hike this
month following stronger-than-expected jobs data. 
Higher U.S. rates could dampen the appeal of high-yielding
emerging market assets, weighing on the value of their
    A Reuters poll showed on Thursday that the Brazilian
currency is likely to weaken only slightly over the next year
despite a deepening political crisis, a sign of sustained market
confidence in the country as it finally emerges from its
worst-ever recession.
    Latin America's No. 1 economy expanded in the first quarter
at the fastest rate since 2013, matching analyst expectations.

    Key Latin American stock indexes and currencies at 2123 GMT:
 Stock indexes               Latest          Daily   YTD pct
                                               pct    change
 MSCI Emerging Markets          1,008.47      0.31     16.59
 MSCI LatAm                     2,533.35      0.04      8.19
 Brazil Bovespa                62,297.45     -0.66      3.44
 Mexico IPC                    49,101.63      0.64      7.58
 Chile IPSA                     4,887.70      0.66     17.74
 Chile IGPA                    24,504.72      0.62     18.19
 Argentina MerVal              22,508.35      0.71     33.04
 Colombia IGBC                 10,681.54      0.03      5.46
 Venezuela IBC                 76,130.90      1.13    140.12
 Currencies                       Latest     Daily   YTD pct
                                               pct    change
 Brazil real                      3.2460     -0.32      0.10
 Mexico peso                     18.6390     -0.15     11.29
 Chile peso                       672.05      0.12     -0.20
 Colombia peso                  2,891.85      0.84      3.79
 Peru sol                          3.273     -0.09      4.31
 Argentina peso (interbank)      16.0500      0.34     -1.09
 Argentina peso (parallel)         16.25      0.86      3.51
 (Editing by Jonathan Oatis and Diane Craft)
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