Brazilian Real Strengthens to Nine-Year High on Yield Advantage

By Carlos Caminada

July 25 (Bloomberg) -- Brazil's real strengthened to a nine-year high for a second consecutive day as rising interest rates lure investors to the nation's fixed income securities.

The real advanced 0.4 percent to 1.5716 per dollar at 9:12 a.m. New York time, from 1.5781 yesterday. The currency touched 1.57, the strongest since January 1999. The real has gained 13 percent this year, the biggest advance against the dollar among the 16 most-actively traded currencies.

Brazil's central bank raised the overnight lending rate 0.75 percentage points to 13 percent on July 23, the most in five years. The increase boosted the attractiveness of the investment-grade country's bonds and interest-rate futures, said Gerson de Nobrega of Banco Alfa.

``The conditions are excellent for foreign investors,'' said Nobrega, head of the bank's treasury desk in Sao Paulo. ``The inflows have been very positive.''

Brazil's consumer prices rose 0.63 percent in the month through mid-July, pushing the annual inflation rate to a 32- month high, the government's statistic agency said yesterday in Rio de Janeiro.

Inflation as measured by the benchmark IPCA-15 index quickened to 6.30 percent in mid-July from 5.89 percent the previous month. Brazil's central bank targets 4.5 percent inflation, plus or minus two percentage points.

The yield on Brazil's interest-rate futures contract for January 2009 delivery fell 3 basis points to 13.68 percent yesterday.

The yield on the government's zero-coupon bonds due in January 2010 fell 12 basis points to 14.79 percent, according to Banco Votorantim.

To contact the reporter on this story: Carlos Caminada in Sao Paulo at at ccaminada1@bloomberg.net