Brazil Swap Rates Fall on China Concern; Real Appreciates

Brazil’s swap rates dropped for the first time in five days as concern that growth is slowing in China overshadowed data that showed the South American nation’s consumer prices rose more than forecast.

Traders increased bets borrowing costs will stay low after a report indicated that manufacturing in China, Brazil’s biggest trading partner, will contract for an 11th straight month. The IPCA-15 index showed consumer prices rose 0.48 percent in the month through mid-September, faster than the 0.46 percent median estimate of 41 economists surveyed by Bloomberg and up from 0.39 percent in the prior period.

“China is worrying because it’s the engine of the world and our exports depend on it,” Eduardo Galasini, the head of treasury at Banco Banif in Sao Paulo, said in a telephone interview. “The inflation figure was bad, but today the most important data is Chinese manufacturing.”

Swap rates on the contract due in January 2014 decreased four basis points, or 0.04 percentage point, to 7.8 percent at 6 p.m. in Sao Paulo. The real gained 0.2 percent to 2.0214 per U.S. dollar.

Swap rates dropped after climbing yesterday to the highest level this month as the Getulio Vargas Foundation’s second preview of IGP-M inflation for September showed that the index of producer, consumer and construction costs increased more than forecast.

The central bank has cut Brazil’s benchmark lending rate by 500 basis points since August 2011 to a record low 7.5 percent. Most traders are betting the easing has come to a close and that policy makers will begin raising the Selic early next year.

Economic View

A weaker global economy may help tame inflation in Brazil and limit the need for policy makers to raise interest rates next year, Galasini said.

“With this risk aversion abroad, the rates may not need to rise so much,” he said.

Euro-area services and manufacturing output fell to a 39-month low in September, and Japan’s exports slid for a third month in August, reports showed.

Brazil’s Treasury sold 4.6 billion reais ($2.3 billion) of zero-coupon bonds due in 2013, 2014 and 2016 today, placing all of the 5.8 million notes offered, according to a statement on the Treasury’s website. The government also sold 219 million reais of fixed-rate bonds maturing in 2018 and 2023. Of 300,000 notes offered, 210,000 were sold.

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