Brazil Rate Futures Yields Fall to Record Low on Growth Concern

Yields on Brazilian interest-rate futures fell to a record as European election results spurred global economic concern after Brazil announced savings account rule changes to facilitate further cuts in borrowing costs.

The yield on the contract due in January 2014 slid for a fourth straight day, dropping four basis points, or 0.04 percentage point, to 8.24 percent. The yield earlier touched a record low 8.15 percent. The real advanced 0.4 percent to 1.9199 per U.S. dollar after earlier depreciating to 1.9356, the weakest level since Sept. 22.

“The market is still adjusting to the change in savings account rules,” said Darwin Dib, chief economist at CM Capital Markets Asset Management, in a phone interview from Sao Paulo. “We have a deteriorating outlook on the global economy with the elections in Europe. That cooling could open space for more rate cuts here.”

Savings-accounts returns will be limited to 70 percent of the benchmark rate if it falls to 8.5 percent or lower, plus a fluctuating Reference Rate, Brazilian Finance Minister Guido Mantega said last week. Brazil’s benchmark will be 8.5 percent at year-end, down from the previous forecast of 9 percent, according to the median estimate in a May 4 central bank survey of about 100 economists published today.

Required minimum returns on savings accounts had spurred concern further reductions by the central bank would drive investors out of government bonds and into bank deposits.

Benchmark Rate

Policy makers cut the benchmark rate by 75 basis points to 9 percent on April 18 to revive growth that slowed to 2.7 percent last year from 7.5 percent in 2010. Brazil has lowered its target rate 350 basis points since August.

Brazilian President Dilma Rousseff is pressuring banks to reduce rates following cuts in the Selic target. The country’s finance system is one of the more profitable in the world and can help the country by reducing interest rates, said Rousseff, according to the government’s Cafe com a Presidenta website.

The real has fallen 2.8 percent against the dollar this year, the second-worst performance after the yen among the most-traded currencies tracked by Bloomberg.

Brazil’s central bank bought $7.2 billion in the spot market from April 1 through April 27, the most since $8.4 billion purchased in March 2011, to help exporters by weakening the local currency. The bank last said it bought dollars at auction April 27, when the real was at 1.8850.

“The central bank is calmer when the dollar is near 1.9,” Luciano Rostagno, chief strategist at Banco WestLB, said by phone from Sao Paulo. “If it gets close to 2 per dollar, the bank could start to see inflation risks and sell dollars.”

Global stocks fell today, dragging the MSCI All-Country World index to a three-month low, while Treasuries and the dollar gained on demand for a refuge after French Socialist Francois Hollande was elected president and Greek voters picked anti-bailout parties.

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