The yield on Brazil’s most traded interest-rate futures contract headed for an almost five-month high after central bank President Henrique Meirelles signaled the authority may raise interest rates in the months ahead.
The yield on the interest-rate futures contract maturing in January 2012 rose 4 basis points to 11.93 percent. A close at this level would be the highest since July 6. The yield on contract due in January climbed 4 basis points, or 0.04 percentage point, to 10.74 percent at 10:52 a.m. in Sao Paulo, the biggest intraday advance in more than three months.
Meirelles told economists yesterday the central bank was aware of potential credit problems that later proved to be limited to Banco Panamericano SA when the board held the benchmark Selic rate at 10.75 percent in September, according to a video posted on the bank’s website. Panamericano later received a 2.5 billion-real ($1.4 billion) bailout that “satisfactorily” solved the issue, Meirelles said.
“The market is already pricing in an almost 50 percent chance of an increase in the Selic in December, although it’s more probable in January,” Eduardo Alves de Castro, who helps oversee 116 billion reais of assets at Santander Asset Management, said in a telephone interview in Sao Paulo. “The central bank signaled it may increase the interest rate in the short run.”
Brazil’s real depreciated the most in three days against the dollar on concern the euro-area debt crisis and China’s bid to tame inflation will stall a global economic recovery, curbing demand for emerging-market assets.
The currency of Latin America’s biggest economy weakened as much as 0.9 percent to 1.7378 per dollar before trading at 1.7281, compared with a close of 1.7216 yesterday.
Emerging-market stocks and currencies slumped and the extra yield investors demand to hold Spanish bonds instead of similar- maturity benchmark 10-year German bunds widened to a euro-era record after the Financial Times Deutschland reported euro-area policy makers are pushing Portugal to seek assistance from a 750 billion-euro ($1 trillion) bailout fund.
Chinese banks retreated amid speculation the government may cut the target for new lending next year. In South Korea, the defense minister quit while the nation prepared for joint military exercises with the U.S. starting Nov. 28 after an artillery attack by North Korea this week.
“The external factor is dominant in the currency market with the aversion to risk,” Roberto Padovani, chief economist at Banco WestLB, said in a telephone interview from Sao Paulo.
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