FX.co ★ Brazil 10-Year Bond Yield Retreats

The yield on Brazil's 10-year bonds has decreased to approximately 13.8%. This decline comes amid persistent tightness in the labor market, even as inflation expectations soften and risk premiums are reduced. The slight easing in inflation readings, along with revised lower forecasts for inflation, has decreased the compensation investors demand for holding long-term real returns. Despite these changes, domestic economic fundamentals remain strong on their own, as evidenced by the 5.6% unemployment rate and the Selic interest rate being close to 15%. However, financial markets are now anticipating a more stable policy trajectory rather than additional tightening, which limits the potential benefits from these factors. Additionally, recent developments between the U.S. and China have led to renewed foreign investment inflows, reducing the trade disruption risk premium that previously contributed to higher yields.