June 29, 2017 / 2:52 PM / a year ago

EMERGING MARKETS-Yields on Brazil long-term rate futures down after price target cut

    By Bruno Federowski
    SAO PAULO, June 29 (Reuters) - Yields paid on Brazilian
long-term interest rate future contracts fell on Thursday after
the government cut its annual inflation target for the first
time in more than a decade and a proposal to overhaul labor
regulations cleared a congressional hurdle.
    The National Monetary Council, Brazil's highest body of
economic policy, set inflation targets of 4.25 percent for 2019
and 4.00 percent for 2020, compared with the goal of 4.50
percent for previous years.
    Economists expected a reduction, but the lower 2020 goal
came as a surprise. Before the decision was announced, they had
been forecasting an annual inflation rate of 4.25 percent for
the years of 2019, 2020 and 2021, according to a weekly central
bank poll released on Monday.
    The lower target fostered bets that the central bank could
cut rates by more than expected next year, traders said. Still,
short-term rate futures were flat as the outlook for the near
term remained intact, with yields suggesting a 75 basis-point
cut in the Selic rate next month to 9.5 percent.
    Hopes that President Michel Temer's plan to revamp labor
regulations could pass a Senate vote next week also helped drive
long-term yields lower after a congressional committee approved
the proposal early on Thursday.
    Demand for Brazilian assets has increased on hopes that
Temer's plan could curb public debt and boost long-term economic
growth, but mounting corruption scandals have left some traders
    The Brazilian real, however, weakened 0.3 percent,
tracking other Latin American currencies lower.
    The Mexican peso was down 0.8 percent as traders
booked profits from a recent rally following
stronger-than-expected U.S. economic growth data. 
    The U.S. report allayed some concerns over the pace of
economic growth in the world's No. 1 economy, which had
triggered bets on a slow pace of interest rate hikes in coming
    Key Latin American stock indexes and currencies at 1420 GMT:
 Stock indexes                                daily %    YTD %
                                     Latest    change   change
 MSCI Emerging Markets               1012.69     0.06    17.38
 MSCI LatAm                          2529.09     0.02     8.03
 Brazil Bovespa                     62165.99     0.24     3.22
 Mexico S&P/BVM IPC                 49170.80    -0.34     7.73
 Chile IPSA                          4737.54     -0.2    14.12
 Chile IGPA                         23741.25    -0.18    14.50
 Argentina MerVal                   21434.53     0.19    26.70
 Colombia IGBC                      10796.19      0.3     6.60
 Venezuela IBC                     121784.38    -0.34   284.11
 Currencies                                   daily %    YTD %
                                               change   change
 Brazil real                          3.2922    -0.26    -1.31
 Mexico peso                         17.9955    -0.83    15.27
 Chile peso                            661.9     0.18     1.33
 Colombia peso                       3031.57    -0.55    -0.99
 Peru sol                              3.246     0.00     5.18
 Argentina peso (interbank)          16.4800    -0.18    -3.67
 Argentina peso (parallel)             16.62     0.60     1.20

 (Reporting by Bruno Federowski)
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