Brazil risk takes sharp downturn after first round of elections

A measure of Brazil’s country risk closed down sharply on Monday, the first session after the first round of the presidential elections, as fiscal risks were widely perceived to be reduced in the wake of a tighter-than-expected result in the first round of the presidential elections.

The cost of protection against default of the Brazilian sovereign debt measured by the five-year Credit Default Swaps (CDS) closed Monday at 283.37 basis points, 22.72 points below last Friday’s 306.09 points.

Monday was marked by the great mood in local financial markets after the better-than-expected performance of President and re-election candidate Jair Bolsonaro (Liberal Party – PL) in the first round raised the possibility that former President Luiz Inácio Lula da Silva (Workers’ Party – PT), the most voted on Sunday, moderate his speech and seek alliances more to the center.

Investors also celebrated the formation of a Congress leaning heavily to the right, with the view that this could force the next government to follow a more conservative fiscal agenda.

After shooting up to 325.48 basis points at the peak of the year, reached in mid-July in the face of an adverse external scenario and domestic fiscal fears, the country risk showed relief as of the end of that same month and reached around 232 basis points in the first half of September.

However, global recession fears again boosted Brazil’s risk premium at the end of last month, when the five-year CDS resumed trading above 300 basis points.

With information from Money Times

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