When the Levy breaks

10 September 2015 By Martin Langfield

The rating agency dropped the $2 trln economy’s investment-grade status, and Moody’s could follow. President Rousseff’s ineptitude, intractability in Congress and Finance Minister Levy’s weakness portend even more trouble. Lawmakers could offer a fix, but that’s unlikely.

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Standard & Poor’s downgraded Brazil’s credit rating to junk grade on Sept. 9, further hampering President Dilma Rousseff’s efforts to regain investors’ trust and pull Latin America’s largest economy out of recession. S&P cut Brazil’s rating to BB-plus, the highest junk rating, from BBB-minus. The outlook on the new rating remains negative, which means additional downgrades are possible in the near term.

The cost of insuring exposure to Brazilian debt jumped to 6-1/2-year highs on Sept.10 after the S&P move. Data from Markit showed five-year credit default swaps rose 18 basis points on the day to 390 bps.

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