Brazil’s 10-year government bond yield eased to 14.1% in late September, as a drop in oil prices helped halt the sharp sell-off in global bonds. Lower oil prices tempered inflation concerns and temporarily paused the broader bond-market correction, amid expectations of progress in diplomatic talks between Iran and the United States.
At the same time, domestic developments exerted upward pressure on yields. Brazil’s mid-month headline inflation accelerated to 4.47% year over year in September, up from 4.24% previously and above the 4.30% market consensus. Persistent inflationary pressures could diminish the likelihood of a continued Selic easing cycle.
The Banco Central do Brasil cut its policy rate by 25 bps to 13.75% at its September meeting and left its forward guidance deliberately open, while the Copom minutes struck a more hawkish tone than markets had anticipated. In the political arena, a recent election poll showed President Lula maintaining a numerical lead over Flávio Bolsonaro in a potential second-round runoff.