Brazil, Petrobras bonds fall on fresh corruption reports

Brazil, Petrobras bonds fall on fresh corruption reports

Brazil Bonds Economy & Policy

Recordings that implicate President Michel Temer in a possible bribery scandal have hit Brazil's sovereign bonds and the state-owned oil company Petrobras’ notes, casting doubts over the country's pipeline of trades.

Petrobras’ bonds were spotted some 50bp wider across the curve with its 2115 bond hit the hardest, debt capital markets bankers said. The century bond was down 8bp on Thursday at 83.25, while the shorter end of Petrobras’ curve had widened 4bp to 5bp, the bankers said.

Brazil’s sovereign bonds were down between 3.5bp to 5bp on Thursday morning, feeling the heat from this week’s US stock sell-off as well as the country's internal woes.

Petrobras reopened its 2022s, 2027s and 2044s on Monday, adding $4bn across the three tranches. Petrobras’ 6.125% 2022s were spotted below 105 cents on Wednesday, after being reoffered at 105.14 on Monday, while the 7.25% 2044s were seen at less than 103 on Thursday.

Investors fear that Temer’s proposed social security reforms could stall if more corruption allegations plague an economy on the road to recovery. Investors have piled into Brazilian stocks and bonds this year on the back of Temer’s labor and pension reforms.

A report on the local daily O Globo said Temer had been secretly recorded discussing hush money payoffs to the former House Speaker Eduardo Cunha.

Prosecutors received the recordings as part of a plea bargain with Wesley and Joesley Batista, who control the meat company JBS. Temer reportedly spoke to Joesley Batista about cash payments to Cunha, who was arrested in October last year for his role in the Lava Jato corruption scandal.

In the recordings, Batista said he was paying Cunha in exchange for silence and Temer replied, "You have to keep it going, OK," O Globo reported on Wednesday.

Temer denied the charges in a statement, saying he never endorsed payments to buy Cunha's silence. Temer confirmed that he met Batista in early March but he said the conversation did not include anything that "would compromise the conduct of the president."

The Batistas are also linked to an investigation for possible irregularities in transactions made with state-run development bank BNDES.