Bonds News

EMERGING MARKETS-Brazil markets surge ahead of final vote on pension reform bill

 (Updates market prices)
    By Sruthi Shankar
    Oct 22 (Reuters) - Brazilian markets surged on Tuesday ahead
of the expected final approval of a landmark pension reform bill
aimed at helping to curb the mounting fiscal deficit in Latin
America's largest economy.
    The benchmark Bovespa stock index jumped 1.1% to
touch an all-time high, with banks leading the gains. The MSCI
index of Latin American stock markets rose 1.7%.
    Brazil's real strengthened to as much as 4.06 per dollar,
its highest level in two weeks, on relief that the government's
key policy this year had entered the home stretch.
    The currency has taken a toll in the recent weeks after a
batch of weak data spurred bets on a deeper interest rate cut
from the central bank next week.
    Indeed, figures on Tuesday showed a measure of Brazilian
inflation fell in October to its lowest in over 20 years,
cementing the prospect of aggressive rate cuts.
    Investors instead took heart from pension reform bill, which
 aims to save the Treasury around 800 billion reais ($195
billion) over the next decade via a range of measures including
raising the minimum retirement age and increasing workers'
pension contributions.
    "Amongst EM equity markets, a recovering economy and
attractive free cash flow yield mean we are "overweight"
Brazil," Citi analysts wrote in a note.
    "Brazilian equity market relative performance (vs EM) has a
high positive correlation to its own currency, so should benefit
from an appreciating real."  
    Other Latin American currencies also firmed, with Chile's
peso bouncing back even as protesters gathered in Santiago and
in other cities. Demonstrations against high Chilean living
costs and inequality showed little sign of ending.
    The peso steadied after a 2.7% slump on Monday, its
worst day in more than six years. A more than 1% jump in Chile's
stock index helped offset a 4.6% dive Monday,
meanwhile, which marked the biggest one-day drop in almost two
    Risk sentiment was lifted by encouraging comments out of
Washington and China about their trade negotiations and as
investors parsed earnings reports from across the world that
were largely above expectations.
    In Argentina, presidential front-runner Alberto Fernandez
called on incumbent Mauricio Macri to keep the peso stable after
general elections on Sunday, and avoid a repeat of the currency
crash that followed the August primary.
    Fernandez blew past business-friendly Macri in the primary,
setting the stage for an expected outright victory in the Oct.
27 presidential election. The peso plunged more than 30% over
the next few days, as investors feared a return of populist
policies under Fernandez.
    The election results could unleash volatility once more, a
Reuters poll of 14 economists showed.
    Key Latin American stock indexes and currencies at 2006 GMT:
          Stock indexes                   Latest   Daily % change
 MSCI Emerging Markets                    1033.94            0.53
 MSCI LatAm                               2762.34            1.66
 Brazil Bovespa                         107197.39            1.11
 Mexico IPC                              43369.76           -0.08
 Chile IPSA                               4992.77             0.8
 Argentina MerVal                        33241.32           2.122
 Colombia IGBC                           13051.39            0.45
              Currencies                  Latest   Daily % change
 Brazil real                               4.0759            1.29
 Mexico peso                              19.1330           -0.02
 Chile peso                                 723.8            0.25
 Colombia peso                               3429            0.52
 Peru sol                                   3.349           -0.36
 Argentina peso (interbank)               58.6400           -0.22
 (Reporting by Sruthi Shankar and Susan Mathew in Bengaluru;
Editing by Alistair Bell and Tom Brown)