Brazil 10-Year Yield Drops on Labor Market Cooling Signs

Brazil’s 10-year government bond yield fell to around 14.13% in late September after August labor data. Brazil created 165,827 formal jobs, above forecasts of 95,700 and up from 58,568 in July, the highest result since March. Unemployment stood at 5.3% in the rolling quarter ended in August, unchanged from the previous quarter and matching expectations. Despite strong payrolls, the marginal reading remains more moderate on a seasonally adjusted basis, while job creation remains weaker than in 2024 and early 2025. The data is consistent with gradual labor-market cooling and expectations for GDP to be near flat in 3Q26, without an abrupt deterioration. As such, it did not dent expectations for continued Selic easing. The move also came as new polls reinforced expectations for a tight presidential race few days ahead of the first round.

Brazil’s 10-year government bond yield rose to around 14.25% in late September following recent election polls showing President Lula widening his lead and a rise in inflation projections. A new poll showed Lula leading by a larger margin in first-round voting intentions and opening a two-point lead over Flávio Bolsonaro in a potential runoff, still within the margin for a technical tie. Bolsonaro is viewed by markets as more fiscally restrictive amid elevated domestic yields and weak business activity. Meanwhile, the BCB’s Focus survey showed that the market raised its 2026 inflation forecast from 4.92% to 4.99%, while the year-end 2026 Selic forecast remained at 13.50%. The 2026 GDP growth forecast fell from 1.88% to 1.86%, marking its third consecutive downward revision. The BCB cut its policy rate by 25 bps to 13.75% at its September meeting and left its next steps open, while Copom’s minutes were more hawkish than expected.

Brazil’s 10-year government bond yield fell to 14.1% in late September as falling oil prices halted a sharp sell-off in global bonds. Lower oil prices tempered inflation concerns, pausing the broader bond-market sell-off, amid expectations of progress in diplomatic efforts between Iran and the US. Meanwhile, domestic factors put upward pressure on yields, as Brazil’s mid-month headline inflation rose to 4.47% year over year in September from 4.24% previously, exceeding the 4.30% market consensus. Persistent inflationary pressures could reduce prospects for the continuation of the Selic easing cycle. The BCB cut its policy rate by 25 bps to 13.75% at its September meeting and left its next steps open, while Copom’s minutes were more hawkish than expected. A recent election poll also showed President Lula maintaining a numerical lead over Flávio Bolsonaro in a potential second-round runoff.