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Brazil bond yield highest among emerging markets
By Chrystiane Silva | São Paulo
Brazil’s 10-year sovereign bonds had the largest yield rise among emerging nations in the last 12
months. The rate of the Global 2025 bond traded on the international market rose to 16.11% from
12.3%, or 381 basis points. For comparison purposes, the yield on the equivalent Mexican sovereign
bonds rose only 39 basis points, while those of Peru had a 40-basis-point increase and of Hong Kong,
only 11 basis points. In general all debt securities issued by emerging countries saw their yields rise, but
at a much smaller proportion than Brazilian bonds. The exception were the Russian bonds, whose yield
fell 361 basis points, and the Indian ones, with a 12-basis-point decline.
There is a combination of factors behind such rise in yields on debt of emerging markets. In the last few
months, these countries had widespread deterioration in their economic performance. Falling
commodities prices contributed to slowing down many emerging economies. Additionally, the increase
in the US interest rate meant investors fled from risky assets and returned to the safety of American
bonds. But in the case of Brazil yields rose above the average of peer countries because of investor
concern about the political and economic crisis.
Uncertainty regarding the fiscal policy and the impeachment proceedings against President Dilma
Rousseff were key factors pushing up rates of Brazilian bonds. “The political and economic instability
made Brazil’s bonds have a much worse performance than of similar countries,” says Cid Oliveira, head
of fixed income at XP Advisory, wealth-management arm of XP Investimentos.
It may take months before this negative investor perception of the bonds issued by Brazil starts
reversing. This year, indicators released showed that the economy continues in a slump. Inflation has
not yet given signs of deceleration and unemployment data showed more people are without work,
which may delay the recovery even more. “The political and economic crisis gave no relief to Brazilian
bonds and added to the global aversion to risky assets,” says Carlos Gribel, head of fixed income at
Andbanc Brokerage in Miami.
Such rise in sovereign yields is likely to have direct impact on the next bond offerings of the republic and
also on corporate efforts to raise funds on the international market. For now, such market is frozen.
Facing more selective investors, the Brazilian government ceased to issue sovereign debt securities last
year and since June no company has managed to raise funds on the international market. But when
there is an improvement in the international scenario and government and companies decide to sell
new debt, the cost will be higher, following the current yields of sovereign bonds.

2. “Depending on the level of risk of the company, there should be good demand for corporate bonds, but
the rates will be higher, at this new level defined by the sovereign securities,” says Gustavo Miwa, head
of fixed income at Bradesco Securities in New York.
Among emerging nations, Mexico’s 10-year bond saw its yield rise to 6.22% from 5.83% in the last 12
months. The small rise owes to investors maintaining their risk perception on the country. However,
Mexico, just like other developing countries, has been suffering with the increase in American interest
rates, which led to money flowing from emerging markets into American assets.
Peru, which is estimated to have grown about 3% in 2015, the best economic performance in Latin
America according to the IMF, also saw its bonds’ yield rise slightly in 12 months, to 7% from 6.6%. “Peru
has a stable fiscal situation, but is affected by the drop in metallic commodities prices,” Mr. Miwa says.
The yield on the 10-year bond of Hong Kong, a financial center that is often seen as a proxy for mainland
China, rose 11 basis points, a small increase considering the big fear of global investors that the Chinese
economy will slow down more than economists expect. The bonds were trading with a 1.49% yield.
Russia had a softening in its bond yield as the geopolitical conflict with Ukraine eased. The 10-year bond
was yielding 10.41%, down 361 basis points in 12 months. “In this case, the geopolitical risk prevailed
over the economic risk of emerging markets,” Mr. Oliveira, with XP Advisory, says. Russia is also
recovering from American sanctions that led investors to show total aversion to the risk of its assets.
Despite higher-than-expected inflation, India is also paying less to investors who bought its 10-year
sovereign bonds. The rate fell 12 basis points since the beginning of last year, to 7.75%.