Brazilian IR Futures Reach 13% on Fiscal Policy Worries

Interest rate futures in Brazil have risen for the fourth consecutive session this Friday, nearing 13% for various maturities. The yield curve reflects growing doubts about President Lula’s government’s fiscal policy, compounded by global economic uncertainties. Out of the 14 trading sessions in October so far, rates have increased in ten instances, highlighting persistent market concerns about Brazil’s economic direction.

By late afternoon, the DI rate for January 2025 stood at 11.192%, suggesting a cautious near-term outlook. Longer-term contracts saw significant increases, with rates for January 2027 and January 2028 rising. January 2030 and January 2033 rates also climbed, indicating growing long-term economic uncertainty.

These increases occurred despite falling U.S. Treasury yields, underscoring Brazil-specific concerns. Market pessimism about public accounts kept both interest rates and the dollar strong against the real throughout the day. Finance Minister Fernando Haddad emphasized the need for sustainable growth, while President Lula hinted at special credit for those affected by São Paulo’s recent blackout.

Market pressures, including uncertainties surrounding U.S. monetary policy and potential protectionist policies under a Trump presidency, contribute to the rise in Brazilian rates. Foreign investors’ impatience and increased sell orders for Brazilian assets further drive this trend.

Despite the extreme nature of these rates, the market has priced in a high probability of a Selic rate hike in November. While U.S. Treasury yields saw modest declines, Brazilian rates continue to rise, emphasizing local economic concerns.