Brazil rallies on support for Alckmin’s presidential bid; Argentina, Uruguay also gain

By Rebecca Melvin

New York, July 20 – A rally in Brazil’s financial markets including debt continued for a second day on Friday as Argentina and Uruguay bonds joined in with gains, according to market sources.

The rally was sparked by reports of headway for center-right presidential candidate Geraldo Alckmin in Brazil’s October presidential elections.

Alckmin, the candidate who is proposing an agenda of reforms including privatization and austerity measures, was reported to have received the backing of two political parties including the Brazilian Labour Party. The move toward consolidation in a large field of candidates – none of whom have held a discernable lead in the race and most of whom back populist policies – is a relief for investors given a long period during which the election has been too close to call. The political backing will likely give Alckmin additional time for television ads during the campaign.

Brazil’s 4 5/8% notes due 2028 were up 0.23 point, or 0.24% to 93.198 on Friday. The paper is well off the lows that it hit in June – at a little more than 88 – but still down about 7% for the year to date.

Brazil’s 5 5/8% notes due 2041 traded up 1.65 point, or 1.8%, to 93.36 on Friday. This bond has traded as low as 83.65 and as high as 103.70 in the last year.

Brazil’s 5 5/8% notes due 2047 were at 90.103, which was up about 0.25 point.

Light SA’s 7¼% notes due 2023 were up about 0.60 point on the day at 96.56. The Rio de Janeiro-based utility priced $600 million of the five-year notes at the end of April, just before a steep selloff in emerging markets currencies and debt. But Banco Safra SA’s 4 1/8% notes due 2023, of which $500 million priced in January, were off three cents at 94.92 on the day.

The Brazilian real was up more than 1.6% on Friday, outperforming other Latin American currencies.

The ebullience was not lost on Argentina, which is a close trading partner with Brazil and which stands to benefit from an economically stronger Brazil, a New York-based trader said.

“Argentina was following through on Friday with Brazil on the positive news that the central-right candidate has gotten support from two political parties,” the trader said.

The front end of the Argentina sovereign curve was better by about 0.25 point on the day and the belly of the curve was better by about 0.50 point, the trader said.

Argentina’s 5 5/8% notes due 2022 were cited as trading notably, with the paper closing up six cents to 93.917 for a yield of 11.1%. The notes remain near their 52-week low mark, which was 93.61 but well off their 52-week high of 106.39 as well.

Argentina’s newer 2028, a 5 7/8% note of which $4.25 billion priced in January to yield 6%, were trading up about 15 cents on the day at 83.90.

The 2028 bond’s two sister tranches, which priced at the same time, were mixed, with the shorter 4 5/8% notes due 2023 up slightly at 88.94, but with the 6 7/8% 2048 notes down by 18 cents, or 0.2%, at 78.83.

Uruguay was also seeing gains on Friday, but other Latin America credits were not really responding, the trader said, as Brazil’s closest neighbors stand to benefit in terms of trade if Brazil picks up and uncertainty is removed, the trader said.

Uruguay’s 4½% notes due 2024 traded up three cents to 104.41, but Uruguay’s 4.975% bonds due 2055 were down 0.20 point to 100.947. There was $1.75 billion of the 2055 notes that priced at 98.713 to yield 5.053% on April 12.

While the emerging markets primary was mostly quiet this past week, the secondary edged up, buoyed by fund flows, lack of supply and fewer geopolitical risk headlines, sources said.

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