Sunday, June 03, 2007

Brazil rates to hit 8% by end of 2008??

Some talk this week at the EMTA meeting in New York that Brazilian rates could hit 8% by the end of 2008. This might me a little optimistic but it is certainly within reason. There was talk 2 weeks ago of another upgrade in the debt of Brazil. It is the goal of the Brazilian government to achieve investment grade status. Once that happens Pension funds and the like will be able to add the debt of Brazil (and its high yield) to it's portfolio's. As such a new, and quite possible, a more aggressive round of buying will occur. This week, the CB of Brazil is expected to cut rates again. The market is not sure whether it will be 25 or 50bp. I expect 50bp as the currency is strengthening at to quick of pace. Will we see Wednesday night what the outcome is.

The U.S. economy continues to tick along. Any hope of a rate cut in 2007 has all but been eliminated (by me at least). Inflation is clearly a concern. Look at your own life... gas, groceries and most other day to day cost's are up. I know for myself it cost me more to get threw a week that a few months ago. Under these circumstances rates cannot go lower (maybe higher??). All other countries seem to be leaning on the side of caution in rate moves these day's. Risking a slowdown to ensure that inflation does not get out of control.

This week few substantial numbers are due out, so I look for more grinding markets and Happy Yield Monkey's everywhere.




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