Brazil bond yields drop sharply after presidential election

Brazilian government bond yields fell sharply on Monday, October 5, following the results of Sunday's first-round presidential election. The market responded to vote counts placing Senator Flávio Bolsonaro ahead of President Luiz Inácio Lula da Silva by more than 2.5 million votes, driving expectations of fiscal adjustments and stronger future interest rate cuts.

Longer-dated inflation-linked bonds posted the largest price increases. The Tesouro IPCA+ 2050 yield dropped 0.49 percentage points to 6.59%, compared with 7.08% on Friday, October 2, generating an 11.5% single-day price return. High volatility triggered a circuit breaker suspension around 2:00 p.m., after the bond traded at 6.55% with intraday gains topping 12%. Trading resumed at approximately 3:50 p.m.

Yield declines spread across other maturities. The IPCA+ 2040 yield fell 0.57 percentage points to 6.68%, delivering a 7.7% price gain. Among fixed-rate paper, the Tesouro Prefixado 2032 yield declined from 14.21% to 12.81%, resulting in a 6.7% gain in real terms. The Tesouro Renda+ 2055 yield dropped 0.47 percentage points, closing at 6.42% compared to 6.89% on Friday.

Fernando Siqueira, head of research at Eleven Financial, stated that long-dated Tesouro Renda+ notes should benefit the most from falling market interest rates. Concurrently, Gustavo Sung, chief economist at Suno Research, noted that while a political shift could lower the risk premium over the medium and long term, public account adjustments still need to be voted on and implemented.