Credit Default Swap increased more in 2002, the year in which former President Lula was elected for the 1st time
The Brazil risk, or CDS (Credit Default Swap), rose in 3 of the last 5 election years. The indicator measures investors’ perception of uncertainty.
The CDS is a form of protection against default in credit operations. It serves as a guarantee against possible payment defaults on public and private bonds. It is associated with the scenario of fiscal perspectives and political and economic uncertainty. The greater the uncertainties in relation to public accounts, the higher the CDS tends to be.
In practice, the Brazil risk works for the investor to verify if the country presents any threat to the financial market. Countries with worse fiscal indicators or with a lack of transparency about the future tend to have the highest CDS.
In 2002, when there were doubts about the government of former President Luiz Inácio Lula da Silva (PT) and the fiscal policy to be adopted, the Brazil risk rose to 3,790 basis points at the monthly close of September, before the election. It cooled down until the end of the year, but still surpassed 2,000 points.
During the government, the indicator reduced drastically. In the 2006 elections, already with the diagnosis of the 4 years of Lula’s government, the CDS started the year at 225 points. Finished at 100 points.
During PT’s 2nd term, the Brazil risk rose again and reached over 600 points again in 2008 because of the global financial crisis. In 2010, he started at 122 points. It dropped to 113 points by the end of the year.
During the Dilma Rousseff (PT) government, the CDS started at 113 points and reached over 200 points on some occasions during the 1st term. He started the 2014 election year with 192 points. It finished high, to 201 points.
The CDS broke the 300-point barrier in March 2015, with signs of economic recession in the country. It surpassed 500 points in September of that year, demonstrating the greatest uncertainty about the political and economic scenario 6 months before Dilma Rousseff’s impeachment. On May 12, 2016, the then president was removed from office and the CDS scored 317 points.
Under Michel Temer (MDB), the CDS started 2018 with 160 points and ended with 206 points. That is, it increased 46 points in the year of the election of President Jair Bolsonaro (PL).
During the government of the current president, it reached a maximum of 377 points on March 18, 2020, when investors had doubts about the impacts of the covid-19 pandemic on the Brazilian economy. There was also an increase in risk in 2022 with the war between Russia and Ukraine and uncertainties about the future of public accounts. It reached 325 points on July 15 this year.
The CDS closed at 258 points this Friday (September 2, 2022). It is 84 points above the level registered 1 year ago and 14 points below the level registered 1 month ago.