Brazil bonds decline as election goes to runoff

Published 10/04/2010, 07:46 AM
Updated 10/04/2010, 07:48 AM
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* Yield on global 2040 rises 6 bps to 2.58 pct

* Real, stocks seen little changed in post election day

* Runoff seen delaying implementation of currency steps

By Guillermo Parra-Bernal

SAO PAULO, Oct 4 (Reuters) - Brazilian global bonds fell on Monday, reflecting concern that political tension might heighten in the coming weeks as the nation's presidential election enters a runoff.

The price on the Brazilian dollar-denominated bond due in Aug. 2040 fell 0.3 cents on the dollar to 139 cents, pushing yields higher by 6 basis points to 2.58 percent in early morning trading in Sao Paulo, according to Thomson Reuters composite prices. When prices fall, yields go up, indicating deteriorating risk perception.

Ruling party candidate Dilma Rousseff placed a strong first in Brazil's presidential election on Sunday but will face a runoff after some voters were turned off at the last minute by a corruption scandal and her views on social issues [ID:nN03268734].

"The confrontational nature of the runoff should add some spice to the contest, and candidates will have to speak out more clearly about their ideas," said Mauricio Rosal, Latin American economist at Raymond James in Sao Paulo.

With almost all votes counted, Rousseff won 46.9 percent of the valid votes. She needed 50 percent to avoid a runoff on Oct. 31.

The result was somewhat of a surprise, since she received lower percentage of votes than most polls had forecast.

Rousseff, who was handpicked by President Luiz Inacio Lula da Silva to continue the center-left economic policies that have made Brazil one of the world's hottest emerging markets, will now go up against her nearest rival, former Sao Paulo state governor Jose Serra.

Serra won 32.6 percent of the votes.

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Full coverage of election: [ID:nBRAZIL]

Special report on Rousseff: http://link.reuters.com/fab25p

Election Top News page: http://link.reuters.com/dux43p

Graphic on polls: http://link.reuters.com/vux47n

Political risks in Brazil: [ID:nRISKBR]

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The runoff could delay the implementation of long-awaited measures to arrest rapid gains in the currency, the real , said Doug Smith, head of Latin America economic research at Standard Chartered Bank in New York.

Analysts and investors expect the country's currency and stocks to be little changed as the possibility of a runoff gained ground in recent days.

"We believe that markets would react favorably to a second round, because it would give voters and observers another 30 days to analyze the proposals of Rousseff and Serra," wrote Paulo Leme, a senior economist at Goldman Sachs in Miami, in a note to clients.

The main stock index in Brazil, the Bovespa <.BVSP> rose for a fifth day on Friday. The real closed at 1.68 reais on Friday.

(Additional reporting by Luciana Lopez, Samantha Pearson and Silvio Cascione in Sao Paulo)

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