Already stagnating in the 3rd quarter of 2023, Brazil signed in the 4th with a new growth zero compared to the previous quarter and only 2.1% over one year.
After a beautiful first half, the largest economy of South America thus signs a disappointing 2nd half, and if it manages to post a growth of 2.9% over 2023 as a whole, it must do so in the first half of the year.
Of course, credit is a big part of it. While the Brazilian Central Bank has revised its key rates five times since the peak of 13.75%, they are still at 11.25%, while the interest rate on 10-year sovereign debt is approaching 10.8%.
These very high yields are even more remarkable because Brazilian inflation was 4.5% in January. At such levels, Brazil offers exceptionally high real yields (after inflation), which comforts investors and supports the local currency, which has appreciated slightly against the euro over the past year.
On the other hand, this expensive credit inevitably weighs on the dynamism of the Brazilian economy. As interest rate cuts stimulate activity, the Brazilian economy is set to return to growth.
Nevertheless, given the high offer in yields, it is on the bond market that we prefer to position ourselves.
So, we are keen to Brazilian sovereign debt.