Brazil 10-Year Yield Nears 1-Year Low

Brazil’s 10-year government bond yield fell to 13%, reaching a near one year low after Flávio Bolsonaro finished ahead of President Lula in the first round of the presidential election, defying most polls. The result triggered a sharp repricing of Brazilian assets. Senator Bolsonaro received 47.03% of valid votes, compared with 45.16% for President Lula. Bolsonaro outperformed the average of polls tracked by Goldman Sachs by more than four percentage points. The senator is viewed by markets as more fiscally restrictive, amid elevated domestic yields and weak business activity. The result strengthened expectations that a Bolsonaro administration could pursue tighter control of public spending and measures to improve Brazil’s deteriorating fiscal position. Lower pressure on public finances could reduce the risk premium demanded by investors, while contractionary fiscal policy could ease inflationary pressures. These factors could allow the BCB to cut interest rates more quickly.