Brazil stages late week relief rally; Lithuania expected with euro-denominated deal

By Paul A. Harris

Portland, Ore., May 19 – The corruption scandal surrounding Brazil President Michel Temer rattled Brazilian bonds, the currency and the Bovespa on Thursday.

However there was a relief rally underway heading into the end of the week, according to a portfolio manager.

With Brazil stocks up 2.5% or more on Friday and big equity names like Vale SA rallying, Brazil credit default swaps were 5 basis points tighter early Friday afternoon, and 20 bps tighter relative to Thursday’s close.

Brazil’s dollar-denominated 7 1/8% notes due January 2037 were up 1.75 points on the morning, at 113¾ bid, 114¾ offered.

Petroleo Brasileiro SA bonds, which had been rallying on the back of very strong earnings numbers, took a substantial hit on Thursday, but were crawling back on Friday, a trader said.

The new add-on to the Petrobras’ 6 1/8% notes due 2022 was 103 bid at mid-day Friday, up from 102½ bid at the open.

Spotting Brazil CDS at 249 bps bid, early Friday afternoon, the trader noted that they had recovered from wides of 275 bps bid on Thursday.

In the week ahead, Lithuania is expected to capitalize upon recent positive market sentiment and show up with a dual-tranche euro-denominated deal, as the market awaits stability before a CES deal calendar materializes, a source said.

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