Morning Commentary: Brazil, LatAm markets shaken from alleged corruption in Temer administration

By Colin Hanner

Chicago, May 18 – Controversy surrounding U.S. president Donald Trump’s administration took a back seat to Brazil president Michel Temer on Thursday morning in emerging markets.

Brazilian newspaper O Globo reported on Wednesday evening that a surfaced audio recording of Temer, in which he allegedly approves of continuing to pay off a potential witness, may link him to the impeachment of former president Dilma Rousseff. The supposed recording was not released.

Brazilian bonds were shaken on the morning, dropping several points across the board.

“At least for Brazil, while you can't say it is totally unexpected, it is a bombshell,” a market source wrote in an e-mail. “It will have ‘collateral damage’ for other countries but won't hit others nearly so hard. I would expect no Brazil deals for a while.”

The source added that Buenos Aires, expected to price a near-benchmark deal on Thursday, has “already delayed pricing their deal” because of the report.

Just days after selling a combined $4 billion in add-ons, Petroleo Brasileiro SA – Petrobras’ notes saw sharp losses.

The issuer’s 5¾% notes due 2020 were down 2¼ points to 102½ bid, 103½ offered.

Its 4 3/8% notes due 2024 were down 4 points to 90½ bid, 92½ offered.

And the 6 7/8% notes due 2040 were down 3¼ points to 93 bid, 95 offered.

Brazil-based Vale SA’s 5 7/8% notes due 2021 were down 2¼ points to 107¾ bid, 108¼ offered.

And its 6 7/8% notes due 2036 were down 4½ points to 102½ bid, 104½ offered.

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