S&P Slashes Brazil’s Credit Rating amid Rising Debt Levels

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S&P Slashes Brazil's Credit Rating amid Rising Debt LevelsStandard & Poor’s lowered Brazil’s credit rating to one level above the junk status, citing increasing debt, slower growth and depleting government accounts.

The rating firm reduced Latin America’s sovereign-credit to BBB-, down from BBB and said that Brazil’s outlook is stable. Fitch Ratings and Moody’s Investor Service have both given Brazil investment-grade ratings with stable outlooks.

The new rating places Brazil at par with the Philippines and Spain, two levels under Mexico and one level below Russia. JPMorgan Chase & Co. data shows that bond yields in Brazil have risen 1.03 percent over the last year to 5.13 percent.

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The lower rating is in contrast with Brazil’s economic boom in 2008, when its bonds were rated investment-grade as the global recession hit. The country seemed to weather the financial meltdown, causing investors to snap up its securities in droves, which saw the Brazilian economy grow at a rate of 7.5 percent in 2010.

However, things have gone downhill since then, as its local manufacturing lost its competitiveness and government measures meant to revive it failed, eroding investor optimism. This prompted S&P to issue a warning of a possible downgrade mid last year.

“Brazil had already been losing credibility,” said Nathan Blanche, a Sao Paulo-based partner at the Tendências consulting firm told Wall Street Journal. “This cut is a confirmation of the loss of credibility by the country, principally in fiscal issues.”

News of the downgraded triggered protests from Brazilian government, with the Finance Ministry stating that the nation’s 2.3 percent expansion in 2013 was larger than most of the G-20 countries.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com