Brazil 10-Year Yield Retreats from Ten-Year High

The yield on the 10-year Brazilian government bond fell to the 15.2% level from the ten-year high of 15.75% reached on November 3rd after the government’s economic team presented a preliminary fiscal adjustment proposal to Congress. Although details remain scarce, it is the first concrete sign of public-account adjustment since President Lula’s reelection. Earlier this month, Lula reiterated that his government is committed to fiscal responsibility while also considering social responsibility, amid pressure to announce adjustment measures after Brazilian assets plunged following his late-October reelection. Meanwhile, BCB policymakers suggested in the latest meeting minutes that elevated interest rates have already dampened economic activity, hinting that rate cuts may be needed to address slower growth and risks to unemployment.

Brazil’s 10-year government bond yield pared gains to hover around 15.18% in November after President Lula reassured markets on fiscal adjustment. Lula reiterated that his government is committed to fiscal responsibility while also considering social responsibility, amid pressure to announce adjustment measures and a drop in Brazilian assets after his late-October reelection. Investors remain focused on fiscal policy, especially the government’s commitment to controlling spending and public debt, which has risen significantly in recent years. Meanwhile, US nonfarm payrolls increased by 165,000 last month, topping all forecasts, and the unemployment rate edged lower. The stronger figures reinforced expectations that the Fed will maintain a restrictive stance. Higher-for-longer rates in advanced economies could also pressure the BCB to keep policy restrictive. The BCB held the Selic rate at 13.75% at its latest meeting, pausing its easing cycle.

Brazil’s 10-year government bond yield rose to 15.25% in November amid fiscal-policy uncertainty and growing bets on a US Federal Reserve rate hike. Investors remain focused on fiscal policy, especially the government’s commitment to controlling spending and public debt, which has risen significantly in recent years. President Lula has faced market pressure to present a fiscal adjustment plan. Concern over the debt trajectory led Lula to meet with economic-team members and former advisers, but no plans have been announced yet. Meanwhile, US nonfarm payrolls increased by 165,000 last month, topping all forecasts, and the unemployment rate edged lower. The stronger figures reinforced expectations that the Fed will maintain a restrictive stance. Higher-for-longer rates in advanced economies could also pressure the BCB to keep policy restrictive. The BCB held the Selic rate at 13.75% at its latest meeting, pausing its easing cycle.