Brazil's 10-year government bond yield recently exceeded 13.8%, rebounding from its year-long lows. This upward trend reflects investors' concerns regarding recent price changes and political uncertainties that have heightened the risk premium associated with Brazilian assets. Despite a decline in headline inflation to 4.46% in November, the central bank is expected to maintain the benchmark Selic rate at 15%. The bank's cautious stance results from volatile trade conditions and persistent underlying pressures, adding uncertainty to the timing and extent of any future rate cuts.
In addition, a political upheaval in BrasÃlia has augmented sovereign risk. The lower house passed legislation aimed at reducing sentences for individuals implicated in the events of January 8th. This decision has cast doubt on policy stability and fiscal integrity, thereby increasing the premium demanded by investors for holding long-term Brazilian debt. Further complicating the scenario, rising global long-term yields have driven up rates in emerging markets, including Brazil, due to strong international financial linkages. This development has escalated funding costs for local borrowers and prompted a swift reassessment of Brazilian bonds.