FX.co ★ Brazil’s 10-Year Yield Rises on Political Risks

Brazil’s 10-year government bond yield climbed to around 12.94%, up from the two-year low of 12.60% reached on October 5th, as bonds came under pressure amid a narrowing lead for Flávio Bolsonaro over President Lula in runoff polls. Recent surveys reinforced the perception that the incumbent has gained momentum in recent days, prompting investors to reprice risk premiums across the yield curve. Although Flávio Bolsonaro has yet to present detailed policy proposals, investors generally see him as more inclined to pursue fiscal reforms, including spending cuts, which are considered essential for lowering interest rates. At the same time, questions persist over the fiscal discipline of a potential Flávio administration. Political pressure has already pushed the candidate to reverse his stance and back an end to the six-days-on, one-day-off work schedule, which the Senate approved yesterday. The amendment’s passage is also being interpreted as a political victory for Lula’s government.