Brazil Yields Drop as Election Race Tightens

Brazil’s 10-year government bond yield fell to arround 14.21% from a near one-month high of 14.90% reached on August 14th, following the release of new polls on the 2026 presidential election. The polls showed President Lula and Senator Flávio Bolsonaro in a technical tie in a potential October runoff. Markets view Bolsonaro as more fiscally restrictive, while elevated domestic yields and weak business activity continue to weigh on the economic outlook. Meanwhile, Brazil’s GDP expanded 0.5% in the second quarter of 2026, slightly above forecasts, driven mainly by agriculture. However, the detailed breakdown was weaker, suggesting economic momentum is fading despite a tight labor market and short-term demand stimulus measures. For the BCB, the data suggest that the effects of monetary tightening are increasingly visible, potentially leaving room for further Selic cuts.

Brazil’s 10-year government bond yield fell to 14.45% from a near one-month high of 14.90% reached on August 14, following the release of the Genial/Quaest poll on the 2026 presidential election. The poll showed President Lula and Senator Flávio Bolsonaro in a technical tie in a potential October runoff, with Lula receiving 42% of voting intentions versus 41% for Bolsonaro. Markets view Bolsonaro as more fiscally restrictive, while elevated domestic yields and weak business activity continue to weigh on the economic outlook. Meanwhile, Brazil’s GDP expanded 0.5% in the second quarter of 2026, slightly above forecasts, driven mainly by agriculture. However, the detailed breakdown was weaker, suggesting economic momentum is fading despite a tight labor market and short-term demand stimulus measures. For the BCB, the data suggest that the effects of monetary tightening are increasingly visible, potentially leaving room for further Selic cuts.

Brazil’s 10-year government bond yield edged higher to 14.60% from a three-week low of 14.57% reached on August 25th, pressured by the National Treasury’s auction of fixed-rate securities. The auction was the main factor driving rates higher and steepening the yield curve, marking the second-largest of the year by financial volume. A total of 31 million securities were offered on August 27th, with a financial volume of more than $24 billion.Meanwhile, labor market data confirmed expectations for another decline in Brazil’s unemployment rate, from 5.4% to 5.3%. The labor market remains highly resilient, with employment and formal employment reaching record highs, which could lead the Copom to pause its 25-basis-point-per-meeting easing cycle. However, Brazil’s inflation rate eased to 4.25% in the first half of August from 4.44% in July, remaining below the central bank’s 4.5% upper tolerance band.