Brazilian assets struggle to contain selloff in febrile markets
Updates throughout, adds investor comment in paragraphs 5-6, local bond yields in paragraph 9
LONDON/NEW YORK, Dec 18 (Reuters) -Brazil's real fell close to 1% on Wednesday and the cost of insuring exposure to the country's debt lingered near a 14-month high with investors anxious as Latin America's largest economy faces a deepening financial crisis.
Brazil's currency has fallen over 12% to the dollar since the start of October and assets from stocks to bonds have also found themselves in the crosshairs of investors, who have been doubtful whether lawmakers would be able to pass the main part of a fiscal bill aimed at putting government finances on a more sustainable footing.
The lower house of Congress late on Tuesday approved the main text of a bill but has yet to vote on some amendments proposed by lawmakers.
The real BRL= broke the 6-per-dollar barrier late last month and has mostly traded above it since. Its yearly decline is close to 22%.
"Investors would like to see more fiscal measures from the government or Congress," said Shamaila Khan, head of fixed income for emerging markets and Asia Pacific at UBS Asset Management.
"The central bank hiked more than expected and have been intervening in the currency so they are doing their part."
Brazil's central bank held spot U.S. dollar auctions for the third consecutive session on Tuesday and reaffirmed its tough monetary policy stance.
The real on Wednesday slipped 0.9% from Tuesday's close to 6.16, struggling to stay off the record weak point of 6.2092 it hit on Tuesday, LSEG data showed.
The local sovereign bond benchmark yield BR10YT=RR hovered near 14.5%, having on Tuesday hit 14.847%, the highest since March 2016. It started the year around 10.5%.
Five-year credit default swaps, reflecting the risk of default for a country on its debt, stood at 188 basis points, according to S&P Global Market Intelligence. The swaps had broken above the 190 bps level on Tuesday, the highest since October 2023. BRGV5YUSAC=MG
The dollar-denominated MSCI Brazil index has fallen more than 30% since the start of the year. .MIBR00000PUS
"The core problem is a perennial one: the government does not have a convincing policy to rein in the primary fiscal deficit and reduce high gross government debt," said Hasnain Malik at Tellimer.
Brazil's nominal budget deficit, including interest payments on public debt, has climbed to 9.5% of GDP from 4.6% when President Luiz Inacio Lula da Silva took office in January 2023.
Reporting by Karin Strohecker and Rodrigo Campos; Editing by Andrew Cawthorne and Ros Russell
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