Brazil’s real declined the most since August and government bonds fell as a wider-than-forecast budget deficit added to speculation that the nation’s credit rating will be cut.
The real fell 2.2 percent to 2.2398 per U.S. dollar, pushing its monthly decline to 1 percent. Today’s decline was the biggest among major currencies tracked by Bloomberg. Yields on local-currency bonds maturing in 2023 jumped 16 basis points, or 0.16 percentage point, to 11.73 percent, the steepest increase since Aug. 29. The yields are up three basis points in October.
“The fiscal numbers were much worse than expected,” Mauricio Junqueira, who helps oversee 750 million reais at Tese Gestao de Investimentos, said by phone from Rio de Janeiro. “This affects the long-term fiscal outlook.”
Finance Minister Guido Mantega told reporters in Brasilia today that the government is always looking for ways to cut costs to meet fiscal targets. Standard & Poor’s and Moody’s Investors Service lowered their outlooks this year on Brazil’s credit, which both companies rate at two levels above junk.
The budget deficit was 22.9 billion reais in September, wider than the 19.3 billion reais median forecast of economists surveyed by Bloomberg. The gap was 23.3 billion reais in February, the deepest since the global financial crisis in December 2008. As a percentage of gross domestic product, the deficit increased to 3.3 percent, the largest since 2009.
Brazil’s borrowing costs also rose after the U.S. Federal Reserve saw yesterday signs of economic improvement, fueling concern that it will curtail a stimulus program that has buoyed emerging-market assets.
Swap rates on the contract due in January 2017 jumped 17 basis points to 11.47 percent, the highest level since Oct. 21. They are up five basis points for the month.
The currency also fell today after the central bank extended the maturities on only about $6 billion of the $8.9 billion of foreign-exchange swaps maturing Nov. 1 in rollover auctions over the past two weeks. The real has rallied 9.2 percent, the most in the world, since policy makers announced on Aug. 22 its program of swaps and credit lines to buoy the currency and curb import price increases.