Brazil is behind all the major countries of Latin America in the dollar bond market

Brazil is behind all the major countries of Latin America in the dollar bond market this year for the first time since 1997 amid the concern of the president-elect, Dilma Rousseff, you can not curb spending growth.

The return of 8.4 percent of Brazil's bonds this year is the lowest among the eight countries of the region followed by JPMorgan Chase & Co. 's EMBI +. Argentine bonds gained 31 percent, the biggest advance in the region.

Rousseff plan to increase cash payments to the poor are helping to fuel speculation that spending will follow the policies of President Luiz Inacio Lula da Silva, public expenditure rose by 27 percent in the first nine months of the year . The average performance of Brazil's dollar bonds rose 88 basis points, or 0.88 percentage point, from 13 October last week to five months of 5.61 percent, according to JPMorgan.

"Dilma not been tested," said Michael Roche, an emerging markets strategist at MF Global Holdings Ltd., a New York broker. "We need to build a risk premium in the country's sovereign spread until proven otherwise."

The central bank raised interest rates this year by 200 basis points to curb inflation, public spending helped trigger the biggest economic expansion in more than two decades. Consumer prices rose 5.63 percent in the 12 months to November, the fastest pace since February 2009.

Alexandre Tombini, Rousseff selection to head the central bank will increase borrowing costs to 12.75 percent 10.75 percent by the end of next year to stem inflation, futures trading shows rates. Tombini, who has served on board the central bank since 2005, was confirmed by the Senate last week.

Minimum Wage

the largest economy in Latin America will grow 7.6 percent this year, according to a survey of 10 December the central bank of about 100 economists.

Rousseff, who takes office Jan. 1, said last month it is considering increasing the minimum monthly wage to 700 reais ($ 409) by the end of his term of four years of 510 reais. The government's budget proposal for 2011 increases the minimum wage of 540 reais a month, the Workers Party Serys Slhessarenko senator told reporters in Brasilia on December 17.

"A normal reaction, considering a new government is underway, is to be concerned about how the new president will carry out the tax bills," said Marcelo Saddi Castro, who oversees 18 billion as chief investment real SulAmérica Investimentos in Sao Paulo, in a telephone interview. "The lower the minimum wage, the better the impact on fiscal accounts."

Budget Deficit

The budget deficit increased to the equivalent of 3.4 percent of gross domestic product in August, more than five months before reducing to 2.4 percent of GDP in September, when the government received a lot of revenue from the sale of state oil reserves of Petroleo Brasileiro SA.

The office of the Ministry of Finance press would not comment.

Rousseff, who said that social programs and the need for investment in Brazil is not reduced, committed on television on November 1 registration to control public spending because "the most important feature of a government in the world today not spend what you can not spend. "

"We're getting conflicting statements and his administration has done little to ease concerns about policies in the future," said Vitali Meschoulam, strategist at Morgan Stanley in New York, in a telephone interview. "We do not know if they will leave more or less fiscal stress that the previous government."

U.S. Treasury Bonds

The increase in U.S. Treasury yields have deepened the fall in Brazil's dollar bonds in the last month, said Meschoulam.

The U.S. bond yield 10 years touched 3.56 percent last week, the highest level since May 13, speculation about Barack Obama president's decision to extend the tax cuts adopted under his predecessor may boost U.S. growth ., while worsening the nation's budget deficit.

The extra yield investors demand to own Brazilian dollar bonds instead of U.S. Treasuries fell 2 basis points at 6:29 pm New York to 197, according to JPMorgan.

The cost of protecting Brazil's bonds against default for five years fell 2 basis points to 113, according to CMA prices. Swaps credit-default pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fail to adhere to its debt agreements.

The real rose 0.2 percent to 1.7108 per U.S. dollar.

Yields on Brazil's overnight rate for futures contracts in January 2012 rose 1 basis point to 11.86 percent.

BNDES

The Finance Minister Guido Mantega, who shall hold office under Rousseff said in November that Brazil plans to cut funding for state development bank by 50 percent next year in an effort to topple the world the second highest interest rates adjusted for inflation.

BNDES, as the lender is known, will conduct an auction of local corporate bonds on 20 December as part of a government plan to boost trade in the secondary market, according to a bank official who declined to be identified accordance with the policy.

The bank auctioned bonds issued by the Cia. De Bebidas das Americas, Tractebel Energia SA and Cia. Energetica de Minas Gerais, according to three investors who received an email from the bank detailing the plan. The auction will take place between 11 am and 11:30 am

Brazil's bonds dollar again to 11 percent last year, beating Mexico's debt, Moody's Investors Service raised the South American country with an investment grade rating of Baa3. Brazil won its first investment grade rating in April 2008, when Standard & Poor's raised to BBB-. Fitch Ratings matched the movement of a month later.

The yield on Brazil's bonds touched 4.72 percent on Oct. 13, the lowest since JP Morgan began tracking the data in December 1997.

"You have a credit that was too tight and had passed in previous years, the good news in the fundamentals and is priceless," said Meschoulam. "So far, Brazil is less likely to be upgraded to the smallest loans in the region and on a relative basis seems less attractive."