Brazil’s 10-year government bond yield climbed to 14.6% in July, as weaker-than-expected fiscal data deepened worries about the country’s public finances. Gross public debt reached 81.1% of GDP in May, surpassing market expectations of 80.7%, while the primary deficit widened to R$56.1 billion, above projections of a R$53.5 billion shortfall. This deterioration in the fiscal outlook strengthened expectations that borrowing costs will remain elevated.
Political factors also added pressure. An AtlasIntel/Bloomberg poll showed President Lula with a 6.5-point lead over Flávio Bolsonaro in a hypothetical runoff, reinforcing the perception of a more expansionary fiscal stance ahead. At the same time, annual inflation in the first half of June rose above the central bank’s upper tolerance band, topping 4.8%.
Partially offsetting these concerns, labor market data signaled a gradual cooling: formal job creation slowed to roughly 73,000 positions in May, well below the forecast of 115,000.