Brazil Real Tumbles as Moody’s Signals It May Cut Rating to Junk

Brazil’s real fell after Moody’s Investors Service said it may cut the nation’s sovereign rating to junk as the economy worsens and the government struggles to push through measures to shore up the budget.

Moody’s said in a statement Wednesday it put Brazil’s rating under review and that a turnaround in Brazil’s economic and fiscal performance “now appears unlikely in 2016.” A second rating-company downgrade to junk could trigger a sell-off of Brazilian assets by some institutional investors whose bylaws prevent them from holding such securities. Standard & Poor’s stripped Brazil of investment-grade status in September.

“This is a stronger action than just a negative outlook,” said Win Thin, the head of emerging-markets strategy at Brown Brothers Harriman & Co. in New York. “I think it’s a done deal, the economic numbers point to a downgrade.”