Brazilian government bonds are suffering the biggest quarterly losses since the run-up to former President Luiz Inacio Lula da Silva’s election in 2002 led to speculation that the nation would default.
Dollar-denominated bonds from Brazil, Latin America’s biggest nation, plunged 7.55 percent since the end of March, the biggest slide since a 16 percent drop in the third quarter of 2002 before Lula’s October election that year. The loss this quarter exceeds a decline of 6.15 percent for countries with triple-B ratings, according to Bank of America Corp.
Investors are becoming concerned that President Dilma Rousseff’s administration is undoing the progress of her mentor and predecessor, who overcame bondholder skepticism to win the nation’s first-ever investment grade in 2008. Brazil is now grappling with inflation above its 6.5 percent target, the prospect of a credit downgrade and the biggest street protests in more than two decades as speculation increases the Federal Reserve will reduce its unprecedented bond buying that had pushed investors into higher-yieldingemerging markets.
“The street protests are really exposing a lot, the many levels of weaknesses that the administration put into the economy,” Italo Lombardi, an economist at Standard Chartered Plc, said in a telephone interview from New York. “If they don’t take actions and we continue to see low growth, then we could see a downgrade.”
The finance ministry declined to comment on the nation’s bond performance and investor confidence.
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