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Brazil's Real Plunges Ahead of New Fiscal Target Announcement

  • Vale extends three-day gain, while Itau and Petrobras Drop
  • Five-Year CDS approached highest since 2008 as bonds slump
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Brazil's Credit Rating Cut to Junk by Fitch

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Brazil’s real dropped to the lowest in seven weeks after Fitch Ratings handed Latin America’s largest economy its second junk credit grade, a move that may compel some institutional investors to dump the nation’s assets. The Ibovespa followed gains in global stocks.

The slide in the currency accelerated after Fitch lowered Brazil one step to BB+ with a negative outlook, which implies the potential for further cuts. The Ibovespa erased its losses after the Federal Reserve raised interest rates as predicted by traders and economists. Lender Itau Unibanco Holding SA and oil producer Petroleo Brasileiro SA slumped, while miner Vale SA rallied. Yields on Brazil’s $4.3 billion benchmark bonds due 2025 climbed to the highest level since they were issued in October 2013. The cost of insuring Brazilian debt in the credit-default swaps market approached a seven-year high.