Brazil’s currency led global declines, stock futures tumbled and bonds sank after Standard & Poor’s cut the nation’s credit rating to junk with a negative outlook, deepening the selloff for this year’s worst-performing major emerging market.
The real fell 2.9 percent to 3.8944 per dollar at 8:38 a.m. in New York, the most among major currencies, as it set a fresh 12-year low. Futures on the Ibovespa stock index dropped 3 percent and American depositary receipts of state-controlled oil producer Petroleo Brasileiro SA decreased 6.1 percent to $4.78 in early trading. Yields on the country’s $4.3 billion of bonds due in 2025 rose 0.26 percentage point to 5.79 percent, the highest since the securities were issued in 2013.
Societe Generale SA, BNP Paribas SA and Nomura Holdings Inc. all predicted the real would sink past 4 per dollar in coming weeks. The downgrade to BB+, the highest speculative grade, highlights the failure of President Dilma Rousseff’s administration to shore up the government’s budget amid forecasts for the longest recession since the 1930s, inflation at a 12-year high and a collapse in prices for Brazil’s commodity exports. S&P’s negative outlook means it may reduce the grade further, even as Fitch Ratings and Moody’s Investors Service keep the country at investment grade for now.
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