FX.co ★ Brazil 10-Year Bond Yield Halts Plunge

The yield on Brazil's 10-year government bond has stabilized around 13.45%, halting its previous decline to seven-week lows. This stabilization is attributed to strong demand, a reduction in short-term funding pressures, and the influence of a highly restrictive policy rate. The Central Bank of Brazil's (Copom) decision to maintain the Selic rate at 15% while emphasizing a cautious, data-dependent approach to any future easing has anchored a significant real yield differential, thus encouraging foreign investment in Brazilian assets focused on carry and duration. This situation is further supported by a softer inflation outlook, which has lowered expectations for future interest rates and compressed term premiums. However, risk premiums remain elevated due to ongoing political and fiscal uncertainties, which continue to cloud the medium-term fiscal landscape and limit further reductions in long-term yields.