External Debt Round-Up

August 2008 | Market Strategy

We think that there could be some significant downside potential for Brazil's US$ Global 27 bond. At 6.3%, current yields do not appear attractive enough to warrant a heavy long position, especially at a time when the local Selic rate is at 13.00% and rising. Moreover, the ongoing correction in commodity prices - which still has ample room to the downside over the medium term - could further dampen demand for the sovereign paper (although we stress that Brazil's overall creditworthiness, or ability to pay, is not in question). The technical picture, too, provides cause for concern.

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