Brazilian Interest Rates Keep Rising as U.S. Election Looms

The financial markets experienced another day of rising interest rates. This marks the third consecutive session of increases. Investors closely watched the U.S. presidential race and awaited fiscal measures from the Brazilian government.

The DI rates for January 2025 closed at 11.256%, up from the previous 11.25%. This rate reflects short-term expectations for the Selic rate. The January 2026 contract rose to 12.745% from 12.702%.

Longer-term contracts also saw increases. The January 2031 rate reached 12.9%, up from 12.803%. The January 2033 contract climbed to 12.83% from 12.72%.

Early in the day, rates briefly dipped. However, they soon turned positive, mirroring the rise in U.S. Treasury yields. This shift stemmed from expectations of a cautious Federal Reserve approach to rate cuts.

The market anticipates a Republican victory in the upcoming U.S. presidential election. Donald Trump’s campaign promises include increasing tariffs on Chinese goods and reducing taxes.

These policies are seen as potentially inflationary. Interestingly, the rise in Treasury yields occurred despite signs of a cooling U.S. job market. The JOLTS report showed job openings falling to their lowest level since January 2021.

Brazilian Market Sentiment Amid Global Trends

João Ferreira of One Investimentos noted the impact of global trends on Brazilian markets. He highlighted the uncertainty surrounding the U.S. election as a key factor influencing interest rates.

In Brazil, the lack of concrete deficit reduction measures added to market concerns. Finance Minister Fernando Haddad stated that new policies were still under review, with no set release date.

The National Treasury‘s weekly bond auction reflected these uncertainties. Inflation-linked bonds (NTN-Bs) for 2029 sold at 6.81% interest. Rates for 2035 and 2060 bonds were 6.80% and 6.7073%, respectively.

These rates were notably higher than those seen in early October. The increase suggests investors are demanding higher returns for Brazilian assets.

In addition, market predictions now show a 96% chance of a 50 basis point Selic rate hike next week. This is up from 92% the previous day. The current Selic rate stands at 10.75% annually.

Central Bank President Roberto Campos Neto expressed concern over unanchored inflation expectations. He emphasized the importance of addressing this issue for the inflation targeting model.

By late afternoon, U.S. Treasury yields had reversed course. The two-year yield fell 2 basis points to 4.119%. The ten-year yield dropped 1 basis point to 4.272%.

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