Brazil Yields Rise on Election and Higher Inflation Forecasts

Brazil’s 10-year government bond yield rose to around 14.25% in late September following recent election polls showing President Lula widening his lead and a rise in inflation projections. A new poll showed Lula leading by a larger margin in first-round voting intentions and opening a two-point lead over Flávio Bolsonaro in a potential runoff, still within the margin for a technical tie. Bolsonaro is viewed by markets as more fiscally restrictive amid elevated domestic yields and weak business activity. Meanwhile, the BCB’s Focus survey showed that the market raised its 2026 inflation forecast from 4.92% to 4.99%, while the year-end 2026 Selic forecast remained at 13.50%. The 2026 GDP growth forecast fell from 1.88% to 1.86%, marking its third consecutive downward revision. The BCB cut its policy rate by 25 bps to 13.75% at its September meeting and left its next steps open, while Copom’s minutes were more hawkish than expected.