Brazilian stocks and the real currency slumped after the surprise reelection of President Luiz Inacio Lula da Silva as the bullish investor sentiment which followed his right-wing rival's success in the first round of voting evaporated. Brazil's index tumbled over 23% at opening bell, logging its biggest-eever intraday loss while interest rate futures rose. The selloff hit Brazil's sovereign debt, with longer-dated bonds hit hardest and the 2056 maturity down around 2.5 cents.
Meanwhile, trading on Brazil's stock exchange was halted for 30 minutes after the benchmark Bovespa index fell 10% from its last close, triggering the market's circuit breaker mechanism, stock exchange operator B3 said in a statement. The move came after B3 initially expanded the daily trading limits for Bovespa stock index futures, dollar futures and interest rate futures in response to heightened market volatility.
Brazil's five-year credit default swaps, a measure of the cost of insuring against sovereign default, jumped to 151.67 basis points from Friday's close of 120.21, S&P Global Market Intelligence data showed.
As markets tumbled, the Brazilian Treasury cancelled its regular auctions of inflation-linked and fixed-rate government bonds scheduled for October 27 and October 29, respectively. Prices of raw sugar, of which Brazil is a major exporter, slid nearly 5% on the collapsing exchange rate.
The plunge is a sharp reversal from the rally seen earlier this month, when markets soared on expectations of a shift to the right when Senator Flavio Bolsonaro, the son of former President Jair Bolsonaro, unexpectedly finished first in the opening round of Brazil's presidential elections.
The Bovespa index had closed on Friday almost 7% above its level before the first round, while the real had been nearly 5% stronger against the US dollar. Interest rate futures had also reflected expectations that tighter fiscal policy in the event of a Bolsonaro government would make room for lower borrowing costs.
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