April 7 (Bloomberg) -- Mexico is poised to reach “parity” with Brazil in the credit-default swaps market after President Felipe Calderon sought a $47 billion credit line from the International Monetary Fund, according to RBS Securities Inc.

The CHART OF THE DAY shows, in white, the cost of protecting Mexican bonds against default for five years nearing that of Brazil. The spread between Latin America’s two biggest countries reached a record 61 basis points on March 25, reversing a seven-year stretch in which the cost to protect against a default in Brazil was higher, as Mexico’s drug war, slowing exports to the U.S. and tumbling peso eroded confidence.

Mexico said April 1 that it will request the IMF money to shore up its foreign reserves and will tap a $30 billion swap line with the Federal Reserve, fueling a rally in the country’s bonds, stocks and currency. The arrest of two of the nation’s most-wanted traffickers also eased concern that the drug war will keep building and deepen an economic slowdown.

“I have been looking for a collapse towards spread parity,” Siobhan Morden, a Latin America debt strategist at RBS in Greenwich, Connecticut, wrote in a report. “The recent effective policy measures should partially immunize Mexico credit spreads from the U.S. economic crisis and allow for catch-up performance versus peers.”

Five-year credit-default swaps tied to Mexico’s bonds traded yesterday at 2.98 percentage points, compared with 2.90 percentage points for Brazil, according to data compiled by Bloomberg. Mexico’s swaps plunged 79 basis points last week to 2.94 percentage points, the lowest since Jan. 6.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. Credit-default swaps, which are used to hedge against losses or to speculate on a country’s ability to repay its debt, pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.

(To save a copy of the chart, click here.)

To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net

Last Updated: April 7, 2009 00:01 EDT