Brazil Futures Yields Rise on Europe Debt Optimism as Real Falls

Yields on most Brazilian interest-rate futures contracts rose after Spain sold more bonds than expected, spurring bets that stability in Europe may prompt the central bank to slow its pace of interest-rate cuts.

Yields on the interest-rate futures contract due in January 2013 rose five basis points, or 0.05 percentage point, to 9.87 percent. The real fell for a second day, losing 1.1 percent to close at 1.8638 per dollar. It earlier touched 1.8692, the weakest level since Nov. 28.

Rate-futures yields rose after Spain sold debt at lower costs than it did last month and German investor confidence unexpectedly increased, signaling European leaders may succeed in containing the debt crisis that is weakening global economic growth. The events fueled speculation Brazilian central bank President Alexandre Tombini will slow the pace of rate cuts, said Luciano Rostagno, chief strategist at Banco West LB.

“The possibility of a recovery of the external market reinforces bets that the central bank will avoid an acceleration of rate cuts,” Rostagno said in a telephone interview from Sao Paulo. “The scenario abroad is a little optimistic.”

Brazil’s central bank last month trimmed rates for a third straight meeting, to 11 percent, to shield Brazil from the European debt crisis.

Traders are wagering the central bank will reduce the benchmark rate by about 125 basis points by April, futures trading shows.

Brazil’s retail sales were unchanged in October from September, the national statistics agency said today, trailing a forecast for 0.2 percent growth among economists surveyed by Bloomberg. Sales rose 4.3 percent in October from a year ago, the agency said. Optimism about Europe overshadowed retail figures that showed a slump in consumer demand, Rostagno said.

The data “showed an accommodation in consumption,” he said. “The number was not very good, but it wasn’t a big surprise,” he said.

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