Paraguay's 10-year dollar-denominated bond yield jumped 45 basis points to 9.25 percent following reports of a deepening bank crisis. The guaraní fell 1.8 percent against the U.S. dollar to 7,450, its steepest single-day decline in six months.
Opposition lawmakers in the Chamber of Deputies initiated impeachment proceedings against President Santiago Peña, citing failure to contain banking sector liquidity issues and lack of transparency on the extent of financial problems.
The fixed-income market repriced Paraguayan sovereign risk sharply. The two-year yield rose 60 basis points, steepening the curve and signaling heightened duration risk. Credit default swaps on Paraguay's sovereign debt widened 80 basis points, reflecting an elevated perceived probability of default.
The Central Bank of Paraguay faces pressure to intervene through liquidity injections or rate adjustments. Such moves could strain the national budget, already stressed by commodity price volatility and a widening trade deficit. Brazil's 10-year yield rose five basis points, showing limited regional contagion at this stage.
President Peña's office announced an emergency cabinet meeting for tomorrow to address the crisis. The Chamber of Deputies plans a vote on impeachment by Friday.
