Brazil Fixed Income Flows to Lower Cost of Funds: Citi

S&P promotion of Brazil to investment grade will increase fixed-income flows and lower the sovereign’s cost of funds by 40bp, Citi says. “From a cost of capital view, it looks like the sort of potential of other sovereigns with recent action,” strategist Geoffrey Dennis says, noting that the market has priced in most but not all of the upgrade. Citi says Brazil yields, having traded at around 6.30% before the announcement, have already fallen to 6.09% on a blended USD sovereign bond yield basis. This is still above investment-grade Peru’s 5.70%, leading to the projection that Brazilian cost of capital could drop another 40bp.