Optimism surrounding progress on the new fiscal framework in Congress led interest rate futures contracts lower on Tuesday, on a day when Treasury yields held highs for most of the day, but migrated towards the negative in the afternoon.
Domestic rates even swung slightly higher earlier in the session, in line with the rise in Treasury yields at the time, amid US debt concerns.
On Monday evening, US President Joe Biden and House Speaker Kevin McCarthy again ended no-deal talks on raising the government’s debt ceiling.
Still in the morning, however, future rates in Brazil migrated towards negative, amid positive readings on the trend of the fiscal picture.
“There is some optimism with the vote on the new fiscal framework. The expectation is that it will be approved by a large margin, without major surprises,” said Luciano Rostagno, Banco Mizuho’s chief strategist.
In the morning, the speaker of the proposal in the Chamber, the deputy Cláudio Cajado (PP-BA), hoped that the dissatisfaction of the parliamentarians with the political structure of the government would not contaminate the drafting of the proposal.
He also reiterated that he will change the wording of his opinion to clarify some points of the text, but denied that there will be changes that will loosen the fiscal framework.
The expectation is that the painting will be voted on this week.
“The question of the framework is shifting towards a more tangible scenario, with improvements in public spending expectations. This leaves room for the market to look at the start of interest rate cuts,” commented Stefany Oliveira, head of analysis at bull trading.
During the afternoon, the downturn in Treasury yields reinforced the bearish bias for rates in Brazil.
As of late afternoon, the DI rate for January 2024 was at 13.295%, up from 13.315% in the previous adjustment, while the DI rate for January 2025 was at 11.68%, up from 11.74% in the previous adjustment . Among longer contracts, the January 2026 rate is 11.155%, compared to 11.27% in the previous adjustment, and the January 2027 rate is 11.195%, compared to 11.334%.
Near the close, the forward curve discounted a 9% probability that the central bank would cut the Selic rate by 0.25 percentage points at the June monetary policy meeting and a 91% probability that it would keep the rate at 13.75%. annual.
In the US, Treasury rates continued to fall in the late afternoon.
As of 4:36 pm (Brasilia time), the 10-year Treasury yield – a global benchmark for investment decisions – fell 1.00 basis points, to 3.7091%.
Source: Terra
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