FX.co ★ Brazil Yields Drop as Election Race Tightens

Brazil’s 10-year government bond yield declined to around 14.21%, down from a near one-month high of 14.90% reached on August 14th, after the release of new polls for the 2026 presidential election. The surveys indicated a technical tie between President Lula and Senator Flávio Bolsonaro in a potential October runoff. Markets generally regard Bolsonaro as more fiscally conservative, while high domestic yields and subdued business activity continue to weigh on the economic outlook.

Meanwhile, Brazil’s GDP grew 0.5% in the second quarter of 2026, slightly above expectations and largely driven by the agricultural sector. However, the detailed components of the report were weaker, indicating that economic momentum is fading despite a tight labor market and short-term demand stimulus measures. For the BCB, the data suggest that the impact of previous monetary tightening is becoming increasingly evident, potentially creating room for further cuts to the Selic rate.