Brazil 10-Year Yield Falls After Selic Cut

Brazil's 10-year government bond yield fell to 14.25% from the two-week high of 14.5% on September 15th amid a pullback in energy prices and rate cut by the Central Bank of Brazil. The BCB cut its rate by 25bps to 13.75% and left its next steps open, saying that the current environment of uncertainty calls for composure and caution in the conduct of monetary policy. It was the final monetary policy meeting before the presidential election in October. Yields were also pressured by a pullback in oil prices, limiting the risks of a hawkish turn by the central bank. Meanwhile, gains by Flávio Bolsonaro in recent presidential election polls have supported Brazilian bonds, as markets view Bolsonaro as fiscally restrictive, while elevated domestic yields and weak business activity continue to weigh on the economic outlook.

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.