Brazilian Interest Rate Futures Approach 13% Amid Fiscal Policy Concerns

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. This trend highlights the persistent nature of the market’s concerns about Brazil’s economic direction.

By late afternoon, the DI rate for January 2025, which indicates short-term Selic rate expectations, stood at 11.192%, slightly up from the previous 11.182%.

This small increase suggests a cautious outlook for the near future. Longer-term contracts saw more significant increases. The January 2027 rate reached 12.92%, up from 12.849%, while January 2028 hit 12.955%, rising from 12.89%.

These jumps indicate growing long-term economic uncertainty. Further out, January 2030 and January 2033 rates climbed to 12.97% and 12.86%, respectively.

These increases occurred despite falling U.S. Treasury yields, underscoring Brazil-specific concerns. Market pessimism about public accounts persisted even without new fiscal developments.

This sentiment kept both interest rates and the dollar strong against the real throughout the day. Finance Minister Fernando Haddad reiterated the need for sustainable growth during an event in São Paulo.

Economic Pressures and Interest Rate Trends

At the same gathering, President Lula hinted at special credit for those affected by São Paulo’s blackout. Rafael Sueishi, head of fixed income at Manchester Investments, pointed out that external factors also play a role.

The uncertainty surrounding U.S. monetary policy and the potential for protectionist policies under a Trump presidency contribute to the pressure on Brazilian rates.

At its peak, the January 2030 DI rate touched 12.99%, with other maturities also approaching the 13% mark. This surge reflects the height of recent pessimism in the market.

Sueishi commented on the extreme nature of these rates, suggesting that expectations of a Selic rate above 13% seem exaggerated.

However, he noted that foreign investors’ impatience and increased sell orders for Brazilian assets are driving this trend.

Near closing, the market priced in a 90% probability of a 50 basis point Selic rate hike in November, with a 10% chance of a 75 basis point increase. The current Selic rate stands at 10.75% per year.

U.S. Treasury yields saw modest declines, with the 2-year yield dropping 4 basis points to 3.95% and the 10-year yield falling 2 basis points to 4.075%. These movements contrast with the rising rates in Brazil, further emphasizing local economic concerns.

LatAm Markets: Live Signals → — real-time movers, turnover leaders and FX across Latin America.