Brazil 10-Year Bond Yield Drops to Mid-August Lows

The 10-year Brazilian government bond yield fell toward 13.8%, returning to mid-August lows as easing global rate expectations and improving domestic inflation dynamics sharply reduced both external and local term premia and prompted demand for duration. Externally a much weaker US labour picture and softer wholesale inflation pushed US Treasuries lower and convinced markets the Fed will start cutting soon, which in turn pulled down the global yield curve that Brazilian paper must clear. Domestically August’s disinflation, with annual inflation easing to 5.13% and softer monthly price prints, has nudged the inflation trajectory toward lower year-end readings, reduced the inflation risk premium embedded in long maturities and made fixed income more attractive with the Selic rate still at multi-decade highs.