Brazil Futures Yields Fall as Lower Growth Boosts Rate-Cut Bets

Yields on most Brazilian interest- rate futures fell as traders increased bets the central bank may prolong its cycle of interest-rate cuts amid signs growth in Latin America’s largest economy is slowing.

Yields on the contract due in January 2013 headed to their third weekly decline, falling two basis points, or 0.02 percentage point, to 10.25 percent at 9:50 a.m. in Sao Paulo. The yields have dropped nine basis points this week.

Traders boosted bets that Brazil’s central bank may further loosen monetary policy after European Central Bank officials yesterday lowered the benchmark interest rate as the bank’s new president said Europe is heading toward “a mild recession.” Car sales in Brazil declined for a second month in October and a basket of international commodities tracked by the central bank fell, data showed this week, reinforcing the view of policy makers that inflation has peaked.

“Since yesterday, when the ECB cut rates and lowered its forecast for the European economy, the DI is trending downward,” Mauricio Junqueira, who helps oversee about $300 million at Squanto Investimentos in Sao Paulo, said in a telephone interview. “The Brazilian central bank has repeated that it will make moderate adjustments in rates. For this reason, it’s more likely that the cycle of cuts will be longer.”

The real rose 0.1 percent to 1.7353 per dollar, from 1.7375 yesterday. It has lost 3.6 percent since Oct. 28, heading towards the biggest weekly decline in six.

Brazil’s tax agency published rules governing how to charge and collect the so-called IOF tax on some derivatives contracts in today’s official gazette.