Dec. 2 (Bloomberg) -- Brazil’s real fell to a three-month low on speculation the Federal Reserve will curtail monetary stimulus and amid concern the government’s deteriorating finances will lead to a credit rating cut.
The currency depreciated 0.6 percent to 2.3511 per U.S. dollar at 10:01 a.m. in Sao Paulo, the weakest level on a closing basis since Sept. 4. The decline was the biggest among major currencies tracked by Bloomberg. A drop in local-currency government bonds maturing in 2023 pushed yields up 14 basis points, or 0.14 percentage point, to 13.07 percent, the highest since the securities were issued in March 2012. Swap rates on contracts maturing in January 2016 climbed nine basis points to 11.88 percent.
The real fell on speculation that U.S. manufacturing and employment reports this week will show the world’s largest economy is strong enough for the Fed to curtail the program of bond purchases that have kept Treasury yields low and buoyed emerging-market assets.
"When the Fed reduces stimulus, there will be a flow of dollars leaving the country and Treasury yields should rise," Pablo Spyer, director at Mirae Asset Securities Brasil CTVM in Sao Paulo, said in a phone interview. "The trend is for the real to depreciate more in 2014."
In Brazil, the government budget deficit expanded to 3.4 percent of gross domestic product in October, the widest since 2009. Standard & Poor’s and Moody’s Investors Service lowered their outlooks this year on Brazil’s credit rating, which both have at two levels above junk, both citing fiscal concern.
--Editors: Dennis Fitzgerald, Brendan Walsh
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