FX.co ★ Brazil Yields Rise on Election and Higher Inflation Forecasts

Brazil’s 10-year government bond yield climbed to around 14.25% in late September, driven by election polls showing President Lula extending his lead and by an uptick in inflation expectations. A new survey indicated that Lula had widened his advantage in first-round voting intentions and opened a two-point lead over Flávio Bolsonaro in a potential runoff—still within the margin of error for a technical tie. Markets view Bolsonaro as more fiscally conservative, a perception that stands out against the backdrop of high domestic yields and sluggish business activity.

At the same time, the BCB’s Focus survey showed that market participants raised their 2026 inflation forecast from 4.92% to 4.99%, while keeping the year-end 2026 Selic rate projection unchanged at 13.50%. The 2026 GDP growth forecast was revised down for the third consecutive week, from 1.88% to 1.86%. In its September meeting, the Central Bank of Brazil cut the policy rate by 25 basis points to 13.75% and refrained from providing firm guidance on future moves, while the Copom minutes struck a more hawkish tone than investors had anticipated.