Tuesday, February 14, 2012

Today's Major Market Move: Brazilian Real Strengthens 8% Against the USD MTD

We last wrote about the Brazilian Real back on January 18th after it was up 5.5% month to date. Well it wasn't long after that move when the Brazilian Central Bank stepped in to the currency markets to try to push the Real back down. From the WSJ on February 4th:
Following a five-week rally that saw Brazil's currency gain about 8% against the greenback, the central bank intervened to buy dollars on Friday. Such measures tend to weaken the real and haven't been used since September, when the currency was in the midst of a selloff that saw it end 2011 at 1.8625 reais to the dollar. Late Friday in New York, the dollar bought 1.7168 reais from 1.7207 reais late Thursday.
The Real has essentially held its gains for the year despite this latest intervention. The USDBRL cross has declined 8% since January 1st and the Real has been the third best performing currency against the Dollar in 2012. Here are the top strengthening currencies:

Click here to go to the live table.
US based investors that have invested in Brazilian fixed income securities have found a windfall in 2012. All government bonds, regardless of duration, have yields of over 9% and then you combine that with the strengthening real. Here's the table from Bloomberg showing the yields of Brazilian government bonds:

Click here to go to the live table on Bloomberg.

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