Yields Jump as Election Jitters Build

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Yields Jump as Election Jitters Build

Bovespa205,079.00-0.17%

USD/BRL5.05-0.26%

EUR/BRL5.66-0.47%

Vale13.11+0.38%

Market Snapshot

Asset	Level	Change
Bovespa	205,079.00	-0.17%
USD/BRL	5.05	-0.26%
EUR/BRL	5.66	-0.47%
Vale	13.11	+0.38%
Petrobras	25.56	-1.69%
WTI Crude	100.26	-3.28%
Gold	4,140.50	-0.47%
Bitcoin	81,441.18	-0.50%
Brazil 5Y Govt Yield	12.79%	+14 bp
Brazil 10Y Govt Yield	12.87%	+16 bp

Prior Economic Events

Data	Prior	Cons	Actual
No events available

Today's Economic Events

Data	Prior	Cons	Time
No events available

Brazilian local rates sold off sharply, with the 5Y and 10Y government yields rising 14 bp and 16 bp respectively, as political noise ahead of the run-off election weighed on sentiment.
The real held firm, with USD/BRL easing 0.26% to 5.05, while the Bovespa slipped 0.17% to 205,079 points.
A severe poultry disease detection threatens Brazil's position as the world's largest chicken exporter, adding a fresh agricultural export risk to the macro outlook.

Yesterday's Recap

Brazilian assets traded mixed-to-soft yesterday, with the equity benchmark Bovespa shedding 0.17% to close at 205,079 points while the real strengthened modestly, with USD/BRL falling 0.26% to 5.05. The standout move was in local fixed income, where the 5-year government yield climbed 14 bp to 12.79% and the 10-year rose 16 bp to 12.87%, a clear sign that investors are demanding a higher risk premium amid political uncertainty. Petrobras shares dropped 1.69% to 25.56, tracking a sharp 3.28% decline in WTI crude to $100.26, while Vale bucked the trend with a 0.38% gain to 13.11.

EUR/BRL fell 0.47% to 5.66, reflecting broad dollar softness rather than any Brazil-specific flow. The session's tone was dominated by headlines from the first televised run-off debate, where Lula and Flavio Bolsonaro traded corruption accusations and personal attacks, reinforcing the polarized political backdrop. No official Brazilian economic data releases were scheduled for the session, leaving markets to trade primarily on political and commodity signals.

The Day Ahead

The calendar is light for Brazil today, with no major official statistical releases scheduled, meaning markets will likely take their cue from political developments and external conditions. Investors will continue to parse commentary from the presidential campaign trail following the heated first run-off debate, with any shift in polling momentum likely to move local rates and the real. Attention will also focus on commodity price action, particularly oil, given Petrobras' sensitivity to crude moves, and iron ore for Vale.

With the 10-year yield now at 12.87%, the market's appetite for duration will be tested by any further fiscal or political headlines. Traders will also keep an eye on the poultry export story, which could weigh on agribusiness-linked names if trade partners impose restrictions.

Other Economic Notes

The broader Brazilian economic narrative continues to center on the growth slowdown expected next year, driven by high interest rates and lower government spending, a theme echoed in recent market commentary. ↓ p.2

Page 1

Other Economic Notes (continued)

With the Selic rate at 13.75% and CPI running at 4.58% year-on-year, the central bank's restrictive stance is clearly feeding through to tighter credit conditions and softer activity momentum. The detection of a severe poultry disease poses a tangible risk to export revenues at a time when the trade surplus is a key support for the currency and fiscal accounts. Retail sector dynamics also warrant monitoring, with reports suggesting merchants are losing sales even after shoppers enter stores, hinting at weak conversion and cautious consumer behavior.

Fiscal sustainability remains the structural backdrop, with the elevated yield curve reflecting persistent concerns about the trajectory of public debt.

Global Macro News

Global markets are navigating a complex backdrop, with US political developments under President Trump drawing scrutiny ahead of the midterms, as analysts debate the true state of the American economy across inflation, jobs, and growth metrics. Currency markets are showing notable cross-currents, with the pound approaching €1.19 against the euro and the yen rising as Japanese authorities closely monitor FX movements. Oil's 3.28% decline to $100.26 reflects demand concerns and positioning shifts, a direct headwind for Brazil's crude-linked equities and fiscal revenues.

Gold slipped 0.47% to $4,140.50, while Bitcoin eased 0.50% to $81,441, suggesting a mildly risk-off tone in alternative assets. ↓ p.3

Continuation

Global Macro News (continued)

The IMF's engagement with the Republic of Congo on a new lending program highlights continued stress among emerging and frontier economies, a reminder of the differentiated risk landscape within EM. For Brazil, the combination of softer commodities and a firm dollar backdrop creates a challenging external environment, though the real's resilience suggests some insulation from global volatility.

BCB Watch

The BCB's restrictive stance remains firmly in place, with the Selic rate held at 13.75% as of mid-October, reflecting the committee's commitment to bringing inflation toward target. With CPI at 4.58% year-on-year, the central bank is navigating a delicate balance between anchoring expectations and supporting an economy expected to slow next year on high rates and lower spending. Recent communications have emphasized caution, with policymakers signaling that the fight against inflation is not yet complete and that the rate path will depend on the evolution of activity and fiscal dynamics.

The elevated yield curve, with the 10-year at 12.87%, suggests markets are pricing persistent fiscal risk premium alongside the tight monetary stance. For investors, the key takeaway is that the BCB is unlikely to pivot prematurely, meaning duration exposure carries meaningful risk until inflation shows a more decisive deceleration. The committee's forward guidance continues to stress data dependence, leaving the door open for extended holds rather than near-term easing.

Brazil Macro Daily(Beta Mode)