Brazil risk hits 6-month high over financial markets’ fiscal fears

RIO DE JANEIRO, BRAZIL – Brazil’s 5-year CDS (Credit Default Swaps) hit 211.200 basis points, against 210.710 the day before, reaching its highest level since April 14 (214.27 basis points).

The CDS is a derivative that works as a kind of insurance against a debt default – be it sovereign or corporate – and is priced according to the base risk of Treasuries, the U.S. government bonds, considered to be the world’s safest asset.

Dollar futures are close to R$5.70, interest rate futures contracts negotiated at the B3 jumped up to 90 basis points and the Ibovespa sank 4.6%, with the market pricing in a sharp deterioration in the perception of fiscal risk as the government seeks to breach the spending cap, which, for investors, endangers the public debt trajectory.