Perception of Brazilian sovereign credit risk improves significantly, notes Scotiabank

The Brazilian exchange rate environment is stable currently. The Brazilian real continues to be the best performing currency in the Americas. The BRL strengthened 17 percent against the US dollar in the last 12 months. Several factors have contributed for the real to appreciate strongly such as excess global liquidity stable rebound in the nation’s terms of trade, rapid return to primary and secondary global fixed-income markets and market reversal of the overshooting forces that were worsened by a recessionary environment.

Meanwhile, the country’s sovereign credit risk has improved significantly. Financial market metrics implied in credit default swaps have indicated a solid investor preference for Brazil’s government debt assets and solid resilience to U.S.-inspired political uncertainty, noted Scotiabank in a research report. The five-year Brazilian CDS reached a low mark of 212 basis points in March 2017, drop from 500 basis points in February 2016.

Credit agencies are expected to align their ratings for Brazil to the market improvement in the financial market conditions. In the previous month, Moody’s upgraded Brazil’s “Ba2” country rating to “stable” from “negative”.

“Investors welcome the fact that the central bank has US$354 billion in foreign reserves (20% of GDP)”, added Scotiabank.