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Brazil Futures Yields Rise After Meirelles Signals Higher Rates

Nov. 26 (Bloomberg) -- Yields on Brazil’s most traded interest-rate futures contract rose to the highest level in almost five months after central bank President Henrique Meirelles indicated policy makers may raise borrowing costs.

The yield on the interest-rate futures maturing in January 2012 rose 13 basis points, or 0.13 percentage point, to 12.02 percent at 6 p.m. in Sao Paulo, the highest level since June 30. The yield on contracts due in January climbed 6 basis points to 10.76 percent.

“The central bank signaled it may increase the interest rate in the short run,” Eduardo Alves de Castro, who helps oversee 116 billion reais of assets at Santander Asset Management, said in a telephone interview from Sao Paulo.

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 overnight 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.

Brazil’s real fell on concern a debt crisis in Europe and China’s bid to tame inflation will weaken the global economic expansion, curbing demand for emerging-market assets.

The currency fell 0.4 percent to 1.7279 per dollar from 1.7216 yesterday.

“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.

To contact the reporter on the story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Andre Soliani in Brasilia at asoliani@bloomberg.net

To contact the editor responsible for this story: Francisco Marcelino at mdeoliveira@bloomberg.net

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