* Real tumbles to over 4-year low on Fed, China concerns
* Interest rate futures soar as weaker real seen fueling
* Central bank intervenes with FX swaps, dollar sales on
* Treasury repurchases local government debt to stabilize
By Walter Brandimarte and Natalia Cacioli
RIO DE JANEIRO, June 20 Brazil's currency fell
sharply on Thursday and interest-rate futures soared for a
second day, defying government efforts to stabilize both
markets, as investors fret about a likely withdrawal of U.S.
stimulus and an economic slowdown in China.
The real closed 1.6 percent lower at 2.2568
per dollar, its weakest level in more than four years,
complicating government efforts to rein in inflation. Since the
beginning of May, the real has lost more than 11 percent.
The currency rout deepened a day after Federal Reserve
Chairman Ben Bernanke said the U.S. central bank will probably
reduce its stimulus program this year and finish it by mid-2014.
The Fed's stimulus has kept U.S. interest rates low for years,
supporting investor appetite for emerging-market assets.
Chinese factory activity slowed in June to a nine-month low,
adding to worries about slower demand from the main market for
some of Brazil's principal exports such as iron ore and
"Markets are going through a panic moment. The central bank,
within its possibilities, is doing its job (to calm down
investors) but the sentiment is pretty bad," said Glauber
Romano, a trader at the Intercam brokerage in Sao Paulo.
Earlier on Thursday, Brazil's central bank sold 30,000
traditional currency swap contracts due on Sept. 2 and another
30,000 contracts maturing on Oct. 1, a strategy that emulates
the sale of dollars in the futures market.
The contracts provide investors with a hedge, a kind of
insurance, against further declines in the dollar. The
intervention only briefly supported the real, however.
In early afternoon, the central bank returned to the market
with an auction of as much as $3 billion directly on the spot
market, in an attempt to provide temporary dollar liquidity to
The bank said it intended to sell the greenbacks with
repurchase agreement dates set for September 3 and October 1.
INTEREST-RATE FUTURES SOAR
The rout in the currency market contributed to pushing
interest-rate futures sharply higher on the
Investors fear that the sharp depreciation of the real will
further stoke inflation by increasing the price of imported
goods, forcing the central bank to increase its benchmark Selic
interest rate more aggressively.
The spike in interest-rate futures came in spite of news
that Brazil's two biggest cities agreed to revoke an increase in
public transportation fares following nationwide protests
against poor public services.
Lower bus fares should reduce the benchmark IPCA inflation
index by 0.1 percentage point, calculated Daniel Cunha, an
economist with XP Investimentos in Sao Paulo.
The move seemed insufficient to ease concerns about the
long-term inflation trends. Reports of heavy selling of domestic
government bonds by foreigners also contributed to the increase
in local interest rates, traders said.
In an attempt to stabilize the secondary market for domestic
debt, the Brazilian Treasury conducted extraordinary auctions to
repurchase government bonds for the second time this week,
resorting to a strategy it had not used since 2008.
"After the Fed statement, we understand the market needs
price parameters," said a Treasury official who asked not to be
named. "That is the reason for those extraordinary auctions."
On Thursday, the Treasury bought back a little over 1
million LTN and NTN-F notes, fixed-rate debt instruments
regularly sold by the government. It had initially offered to
repurchase as much 4 million of such notes.
It also bought back 240 million inflation-protected NTN-B
notes, out of an initial repurchase offer of up to 2 million of
Additional repurchase auctions of LTN, NTN-F and NTN-B will
be held on Friday, the Finance Ministry said in a statement.