BOND BONANZA

The Brazilian government continues to take advantage of favorable market conditions to issue real-denominated paper. The sovereign again reopened its real-denominated global bond issue in early December, selling an additional $346 million worth of the paper due in 2022. The bonds, placed through Morgan

The pricing was an improvement over the bond's first offering in September 2006, which yielded 12.88%. Another reopening in October was priced to yield 12.47%, reflecting the sovereign's improved credit profile and ongoing investor appetite. The latest reopening takes the issue to a total of $1.35 billion outstanding.

Standard & Poor's revised its outlook on Brazil's long-term credit ratings to positive from stable in late November, boosting the perception that the country is on a steady path toward achieving a coveted investment-grade rating. The ratings action, according to Standard & Poor's analysts, reflects the ongoing decline in the country's fiscal vulnerabilities. The ratings agency predicts the government in Brasilia will post an average general fiscal deficit of 3.5% in 2006-2007.

The Brazilian economy picked up toward the end of 2006, easing concerns over a possible slowdown. The nation's GDP expanded by 3.2% year-on-year during the third quarter of 2006, compared with a 1.2% expansion during the previous quarter. Industrial production rose 4.8% in October 2006 over the same month in 2005, for a 2.9% cumulative increase between January and October. A 6.2% hike in automobile production in October accounted for much of the month's output expansion. Analysts credited central banker Henrique de Campos Meirelles s interest rate cuts for the economic recovery after the bank slashed the benchmark Selic rate to a record-low 13.25% on November 30.

-Antonio Guerrero