06.01.202617:18:39UTC+00Brazil 10-Year Bond Yield Settles Around 13.7%

The yield on Brazil's 10-year government bond has dipped below 13.7%. This shift is attributed to a combination of lower risk-adjusted returns and enhanced external financial resilience, complemented by positive economic activity data which has reduced sovereign risk premiums. Internationally, the demand for Brazilian bonds is bolstered by a weakening dollar and adjustments in the US money markets, spurred by anticipated rate cuts from the Federal Reserve. These changes lower the discount rate applied to emerging market debt. Domestically, recent indicators have alleviated concerns about inflation and the balance of payments. Specifically, the services PMI increased to 53.7 in December, unemployment hit a historically low rate of 5.2% in the three months ending in November, and trade balance forecasts remained positive with a December surplus of approximately US$7.1 billion, culminating in a solid annual balance. Collectively, these developments have strengthened the Brazilian real and decreased the inflation risk premium associated with long-term yields. Additionally, heightened expectations of a substantial easing cycle have enticed investors to capitalize on Brazil's still substantial real yields, which remain above 7%.