Brazil 10-Year Bond Yield Drops From 3-Month High

The yield on Brazil’s 10 year government bond stabilized near 13.45% halting its slide to seven week lows as firm demand met easing near term funding pressures and the support of an exceptionally restrictive policy rate. Copom’s decision to keep the Selic at 15% while stressing that any future easing will be cautious and data dependent continues to anchor a wide real yield differential sustaining foreign carry and duration inflows into Brazilian assets. This backdrop has been reinforced by softer inflation dynamics that lowered forward rate expectations and compressed term premia. Even so risk premia remain sticky as persistent political and fiscal noise sustains uncertainty over the medium term fiscal outlook limiting further compression in long dated yields.

The yield on Brazil’s 10 year government bond fell to 13.65% from three month highs reached on January 20th as stronger demand collided with easing near term funding pressures and a still powerful rate cushion. Foreign inflows have been a key driver, with non-residents adding more than R$12bn to Brazilian equities by late January and extending that demand into local bonds, helping absorb supply and push prices higher. This appetite is reinforced by a Selic rate still at 15% and market pricing that delays the first cut until March, preserving highly attractive real yields and sustaining carry driven interest in longer dated debt. Fiscal and external dynamics have also helped compress risk premia, as record tax revenues of R$2.89tn in 2025 eased immediate budget strain and foreign direct investment largely covered the 2025 current account gap, reducing rollover and FX funding risks.

The yield on Brazil’s 10 year government bond hovered above 13.8% as improved revenues have eased near term funding stress but failed to dispel doubts over fiscal discipline and debt dynamics, keeping long dated yields pinned close to three-month highs. Tax collection reached a record BRL 2.89 trillion in 2025, but investors focused on the caveat that the primary surplus target relies on accounting exceptions and off-budget spending that can turn the apparent surplus into an underlying deficit, exposing the fiscal framework. That uncertainty matters for yields because it raises the likelihood of heavier sovereign issuance ahead of a tightly contested election year, lifting the term premium investors demand while public debt remains elevated near 78% of GDP. The policy backdrop adds further pressure, as the central bank is expected to keep the Selic restrictive for now while easing is only priced later in the year, sustaining high real rates and limiting relief for longer maturities.