The Ibovespa fell from a one-week high amid concern a rout in global bonds will increase borrowing costs, worsening the outlook for Latin America’s largest economy.
Commodity producers including Vale SA led losses on the MSCI Brazil Index as a stronger real sapped the outlook for sales overseas. Fibria Celulose SA rose after saying it will raise pulp prices starting June 1.
Brazil’s benchmark gauge slipped 0.7 percent to 56,792.05 at the close of trading in Sao Paulo. European and Japanese bonds declined as governments in some of the biggest markets sold debt, while yields on Brazil’s notes due 2025 rose to the highest level since March. Prospects for higher borrowing costs could worsen the outlook for countries with significant financing needs such as Brazil, according to Capital Economics.
“So far, the movements in their bond yields have been small,” William Jackson, a senior emerging-markets economist at Capital Economics, wrote in a research note. “But if yields do rise, higher interest payments would worsen already strained fiscal positions.”
Finance Minister Joaquim Levy has vowed to narrow a budget deficit that threatens Brazil’s investment-grade status at a time the economy is set to contract the most since 1990. The nation’s deficit expanded to 7.8 percent of gross domestic product in the 12 months through March.
Vale’s voting shares lost 4.1 percent to 22.33 reais, contributing the most to the Ibovespa’s decrease. The real climbed 1.5 percent to 3.0170 at 5:22 p.m. local time.
Fibria climbed 4.2 percent to 44.44 reais.
Trading volume of equities in Sao Paulo was 6.76 billion reais on Tuesday, according to data compiled by Bloomberg. That compares with a daily average of 6.99 billion reais this year, according to the exchange.