LONDON, May 18 (Reuters) - The cost of insuring Brazil's sovereign debt against default hit the highest level since January and the country's dollar-bonds tumbled across the curve on Thursday after reports implicated President Michel Temer in a graft scandal.
Five-year credit default swaps jumped 68 basis points (bps) to 274 bps from Wednesday's close, according to financial data provider IHS Markit.
Brazil's dollar bond maturing 2045 fell 4.250 cents to 86.425 cents - their lowest level since March, according to Tradeweb.
Market losses, including a 7 percent fall in the real versus the dollar, came after newspaper O Globo reported Temer gave his blessing to an attempt to pay a potential witness to remain silent in the country's biggest-ever graft probe .
"A drop in the real and jump in bond yields, especially if sustained, would spook some members of (central bank) and could prevent another large 100 basis point rate cut at the next meeting," said Edward Glossop, Latin America economist at Capital Economics. (Reporting by Karin Strohecker)