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Bond Market News
Brazil Upgraded to BB; Relative Value of LatAm Sovereign Dollar Bonds
July 27, 2023
Brazil was upgraded to BB from BB- by Fitch reflecting “better-than-expected macroeconomic and fiscal performance”. They noted that proactive policies and reforms by the government despite political tensions since 2018 has seen it address economic and fiscal challenges. Fitch expects real GDP growth of 2.3% in 2023, up from 0.7% previously. They note that President Lula’s policy shift from a liberal economic agenda to a more pragmatic approach than an interventionist approach should boost private investment. Brazil’s inflation has fallen to 3.2% YoY in June 2023 from 11.9% last year thanks to “prudent” monetary policy adding to the upside. Also, Government debt has fallen to 73% of GDP in 2022, below its pre-pandemic levels. While Fitch projects debt/GDP to rise, it is likely at a slower pace. Also, the rating agency added that Brazil is set to achieve a record trade surplus in 2023 thanks to strong agricultural output and lower import costs.
Below is a scatterplot chart of LatAm sovereign bonds across the 0-5Y maturity bucket to highlight relative value of Brazil’s dollar bonds vs. the other major LatAm sovereigns.
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