The yield on Brazil’s 10-year government bond eased toward 13.8%, its lowest level this year, amid improving fiscal metrics, strong inflows into emerging-market debt, and shifting monetary expectations. Treasury data showed May’s primary deficit narrowed to R$40.6 billion—well below forecasts—pushing the 12-month rolling balance into a modest surplus within the official target band and easing concerns over debt sustainability.
Additionally, Copom’s decision to hike the Selic to 15%, coupled with meeting minutes signaling rates will remain at restrictive levels for a “very prolonged period” to ensure inflation convergence, bolstered confidence in Brazil’s disinflation path, encouraging long-end bond buying. At the same time, growing Fed-cut expectations have prompted yield-seeking foreign investors to redeploy capital into high-yielding bonds. JPMorgan notes that EM sovereign spreads and local-debt returns are at their tightest and highest levels, respectively, since 2022.
