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LatAm Sovereign Update

08 October 2020 by jbchevrel

Brazil CDS (224bp) is back to tracking global risk sentiment. The local positive stories this week seemed to disappear yesterday. This was on the back of comments made by the President of the Central Bank about the fiscal outlook. In his view, the anchoring of expectations about the spending cap allowed Brazil to expand expenditures during this period of Pandemic, however, the uncertainties around the path the government is going to take in regards to Renda Cidada are still very high and can translate into a questionable stability of the debt. In other news, Bolsonaro declared he was putting an end to the country’s long-running Carwash probe. The operation has been the driving force behind sending hundreds of Brazil’s political and business power brokers to jail but has been seen to be winding down over the past year. This was especially the case when Sergio Moro (ex lead judge and public face of the operation before becoming Justice Min) resigned in April, accusing the President of trying to meddle in the Federal Police (local equivalent to the FBI). Among LatAm peers, Colombia CDS (125bp) also tracks global risk although more focus is put on on crude prices. Soto commented last night that it’s “highly uncertain” where the current account deficit is heading from here, adding that the 2021 economic rebound will not be enough to return unemployment back to 2019 levels.