Brazil 10-Year Yield Falls on Rate-Cut Bets

Brazil’s 10-Year government bond yield fell to around 14.14% in September, a three-month low, following lower-than-expected inflation data. Brazil’s annual inflation rate eased to 4.22% in August 2026 from 4.44% in July, slightly below forecasts of 4.27% and moving further within the central bank’s target range of 1.50%-4.50%. The data strengthened expectations that the BCB will cut the Selic by another 25 basis points at next week’s Copom meeting. Meanwhile, recent polls have shown Flávio Bolsonaro gaining ground in the presidential race. Markets view Bolsonaro as more fiscally restrictive, while elevated domestic yields and weak business activity continue to weigh on the economic outlook. The move gained further momentum as the intensification of a dispute between Supreme Court justices Alexandre de Moraes, seen as a Lula ally, and André Mendonça has escalated into an institutional crisis.

Brazil's government bond yield fell to 14.3% in September, the lowest in three months, 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. However, high inflation and borrowing costs due to the widening public deficits reflected some deterioration in household consumption, which contracted by 0.4%. 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.