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LATIN BORROWERS: Brazil beats Argentina on points

It may be 148 years since their troops last fought each other in combat and nine years since they buried their economic differences to form Mercosur, but rivalry between Argentina and Brazil still runs deep. These days South America's two superpowers fight proxy wars over credit ratings, GDP growth rates - and of course football.

Brazil's latest victory over its southern rival came in the international debt markets, in the form of basis points. Last month it was able to issue a euro-denominated bond at a cheaper rate than Argentina's debt was trading. This is unexpected: Argentina, after all, is rated one notch higher than Brazil by all the credit-rating agencies.

Brazil's e750 million five-year bond issue, led by Credit Suisse First Boston and Salomon Smith Barney, was priced to yield 417 basis points over French treasuries, a little less than Argentina's outstanding Five-year euro bond. And this is not a one-off. Casper Melville Murphy, strategist at Dresdner Kleinwort Benson, calculates that several of Brazil's dollar bonds are trading through the Argentine yield curve, especially at the short end.

Investor sentiment towards Brazil has changed dramatically since last year's currency crisis. In the wake of the real's forced devaluation, Brazilian interest rates touched 40% and most economists predicted a rapid rise in inflation and a sharp recession.

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