Brazil Bonds to Rise on Monday

Brazilian government bonds are expected to open stronger on Monday as investors reassess the country’s fiscal outlook following Flávio Bolsonaro’s first-round lead over President Luiz Inácio Lula da Silva. Bolsonaro received 47.03% of valid votes, compared with Lula’s 45.16%, sending the election to a runoff on October 25. The result has strengthened expectations that a Bolsonaro administration could pursue tighter control of public spending and measures aimed at improving Brazil’s deteriorating fiscal position. Those expectations may support government debt and put downward pressure on yields, although investors are likely to remain cautious given the closely contested race. The 10-year government bond yield rose for a second consecutive session on Friday to 14.3%, moving further from its three-and-a-half-month low of 14.045% recorded on Wednesday.

Brazil’s 10-year government bond yield rose above 14.15% in October amid external pressure from a global bond selloff ahead of the first round of the presidential election. Renewed selling in US Treasuries fueled a broader global bond rout, while higher oil prices added to inflation concerns and reinforced expectations of further interest-rate hikes by central banks, keeping government bonds under pressure worldwide. Meanwhile, final presidential election polls and a debate in the days ahead of the first round will mark the end of the campaign. Recent polls have reinforced expectations of a tight presidential race. On the data front, Brazil’s manufacturing sector posted its sharpest deterioration in operating conditions since April 2023, according to S&P Global PMI data. Recent labor market data remained consistent with gradual cooling and expectations for GDP to be near flat in 3Q26, despite strong payrolls, keeping expectations for continued Selic easing intact.

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.