FX.co ★ Brazil 10-Year Bond Yield Declines Near 1-Year Low

The yield on Brazil's 10-year government bond recently dropped below 13.5%, reaching nearly a year low. This decline can be attributed to softer inflation figures and diminishing inflation expectations, both of which bolster the argument for decreasing long-term interest rates. In October, the headline inflation rate eased to approximately 4.6%, reducing the likelihood of the Central Bank maintaining the Selic at its historically high levels. With inflation cooling and economic growth waning, investors are increasingly anticipating that the Central Bank will soon commence a monetary policy easing. Additionally, a reduction in perceived risk has provided further support, as recent fiscal and economic updates have depicted a more moderate outlook, alleviating concerns over default risk and debt sustainability, thus lowering the risk premium. Furthermore, a decline in yields on secure assets in the U.S. has decreased the benchmark risk-free rate, which, in turn, facilitates the compression of emerging market yields. This trend enhances the appeal of high-yielding Brazilian bonds, which continue to be attractive due to Brazil's still elevated real interest rates.