Petrobras-Led Bond Surge Fueled by Rousseff’s Poll SlidePaula Sambo and Filipe Pacheco
Brazilian companies led by state-controlled oil producer Petroleo Brasileiro SA are posting their biggest monthly gains since February in the bond market as polls show President Dilma Rousseff will lose her re-election bid.
Voter surveys this week showed Rousseff, whose policies have fueled inflation and undermined growth in Latin America’s biggest economy, winning less support than her competition for the first time this year. Advisers of Marina Silva, who is now favored to win in elections that are just five weeks away, have said the types of price controls that have hurt the profitability of state-owned companies such as Petrobras are “extremely harmful.”
Brazilian corporate debt has returned 2.09 percent this month, double the average gain for emerging markets, according to data compiled by Bloomberg. Petrobras’s $2.25 billion of bonds due in 2041 have soared 7.01 percent, the most of any debt in the country.
“It is all about the politics,” Omar Zeolla, a corporate credit analyst at Oppenheimer & Co., said by phone from New York. “These companies are benefiting from the fact that Rousseff is losing ground while Silva gains popularity.”
Officials for the president and Petrobras declined to comment.
Silva, a former environment minister under Rousseff’s predecessor, entered the race as a replacement candidate this month after Eduardo Campos died in a plane crash Aug. 13.
She would win 45 percent of voters’ support in an Oct. 26 runoff against Rousseff, who would garner 36 percent, according to an Ibope poll published on Aug. 26. The survey of 2,506 people on Aug. 23-25 had a margin of error of plus or minus two percentage points. Silva has 43.7 percent support, 5.9 percentage points more than Rousseff, in an Aug. 21-24 MDA survey published Aug. 27, which has a margin of error of plus or minus 2.2 percentage points.
Scott Mather, deputy chief investment officer at Pacific Investment Management Co., said in a Twitter post yesterday the world’s biggest bond fund is “overweight” Brazil as the “presidential race heats up and optimism for reform grows.”
Rousseff’s efforts to spark growth through tax cuts, billions of dollars in credit and higher social spending have failed to gain traction. Economists in a central bank survey published Aug. 25 expect growth in the world’s second-largest emerging market to slow to 0.7 percent this year from 2.5 percent in 2013. The analysts have cut their estimate for 13 straight weeks to the lowest since the economy contracted in 2009.
Brazil slipped into recession for the first time since the 2009 financial crisis as gross domestic product shrank by 0.6 percent in the April-June period from the previous three months, after contracting a revised 0.2 percent in the first quarter, the national statistics agency said today in Rio de Janeiro.
Consumer price increases in the year through mid-August reached 6.49 percent. Brazil’s central bank targets annual inflation at 4.5 percent, plus or minus two percentage points.
The real advanced 0.2 percent to 2.2366 per dollar today as of 4:27 p.m. in New York.
As part of her effort to contain inflation, Rousseff has limited Petrobras’s ability to increase fuel prices. The company has posted $44 billion in operational losses at its refining division since it started subsidizing imported fuel in 2011.
Bets that Silva would increase gasoline prices gained traction after Joao Paulo Capobianco, one of her advisers, said in an interview with Valor Economico newspaper Aug. 26 that the gasoline subsidy “is a mistake.” Eduardo Giannetti, an economic adviser to Silva, said at an Aug. 20 event in Sao Paulo that measures to control prices are “extremely harmful” in the short term.
“She will perform staggered rises in gasoline prices,” Bernardo Wjuniski, an economist at Medley Global Advisors LLC, said by phone from Sao Paulo.
Silva’s public-relations team did not reply emails or calls seeking comment.
Adriano Pires, head of the Brazilian Center for Infrastructure, a consulting firm, said Silva has yet to give specific details on what policies she would adopt to revive economic growth.
“From the economic standpoint, there is no clarity of what she can actually do,” he said by phone from Rio de Janeiro. “Deep down, Silva is still a question mark.”
Silva has said she would reduce government intervention in the economy and bring more discipline to spending.
“Silva means economic stability, a better macroeconomic environment for companies,” Paulo Petrassi, a fixed-income money manager at Leme Investimentos, said by phone from Sao Paulo.