Market reactions to the removal of former Brazilian President Dilma Rousseff ranged from subdued to ecstatic, with some saying it did not come as a shock and others calling it great news.
The nine-month impeachment process came to a close on Wednesday, when the Senate voted 61 to 20 to remove Dilma from office and put an end to 13 years of the Workers’ Party, or PT, in office. Dilma said she will appeal the decision.
“It wasn’t a surprise in our view,” said a debt capital markets banker in Sao Paulo. “Maybe 70% to 80% of this year’s transactions were already done in the first half of the year, but a window might open in the first two weeks of September, depending on what the Fed does.”
A DCM banker in New York echoed the market had anticipated Dilma’s impeachment and added that the pipeline of bond deals looked full in September.
The markets would have only reacted unfavorably and some companies might have changed their plans to go to the bond market if the impeachment vote had not concluded on Wednesday, a syndicate banker said.
As it was, the BM&FBovespa stock exchange in Sao Paulo dropped 1.15% to 57,901 points on Wednesday, pulled down by losses in the financial and mining sectors. The day before, when Dilma defended her administration in the Senate, the stock market rose 1.55%, helped by a bump in Petrobras shares.
The sovereign’s bonds remained steady after the announcement, as most investors expected Dilma’s removal. Brazil’s 2026s were reoffering a cash price of 112 late yesterday, after opening trading at 112.6, bankers said. On the longer end of the curve, the sovereign’s 2047s were just above par, at 100.7, before opening on Wednesday at 101.
A third DCM banker in Brazil recognized that the market had expected Dilma to lose the vote in the Senate and added that cross-border bond issues would likely pick up after the Labor Day holiday in the US on September 5.
“Brazil is open for business,” he said. “[The impeachment vote] is just the final push to make sure the momentum stays positive in September and October. Global interest rates are low, and investors are still looking for yield. They have a lot of liquidity.”
In Brazil’s local capital markets, the scenario has more to do with declining interest rates than with the results of Dilma’s impeachment trial, said the Sao Paulo-based source.
Copom, the central bank’s monetary policy committee, kept the Selic benchmark lending rate at 14.25% on Wednesday, after annual inflation reached 8.74%. Analysts expect the Selic to fall to 13.75% by the end of the year, before declining to 11.25% in 2017.
“With the reduction of interest rates, the market is going to develop. It’s just going to take a while. The market needs to be rebuilt,” the banker said. “Everyone is still very cautious. Nobody wants to take a wrong step. That’s why it’s going to take a little bit longer.”