DI rates closed sharply higher on Wednesday, nearly 30 basis points on longer maturities, amid political noise and market concerns over Brazil’s fiscal balance, in a move that gained new momentum in the afternoon with the decision to Federal Reserve monetary policy, which has indicated only one interest rate cut in the United States in 2024.
At the end of the afternoon, the DI (Interbank Deposit) rate for January 2025 – which reflects very short-term monetary policy – was at 10.72%, compared to 10.63% in the previous adjustment. The DI rate for January 2026 was 11.34%, compared to 11.192% in the previous adjustment, while the rate for January 2027 was 11.72%, compared to 11.503%.
Among longer contracts, the rate for January 2029 was 12.145%, up from 11.881%, and the contract for January 2033 was 12.33% – a 28 basis point increase from the 12.049% adjustment.
Future rates opened the session already on the rise in Brazil, after the president of the Senate, Rodrigo Pacheco (PSD-MG), announced on Tuesday the decision to return to President Luiz Inácio Lula da Silva some extracts of the PIS-Cofins provisional measure which limited the compensation of tax credits.
Pacheco’s action was seen as a defeat for the government and, in particular, for the Finance Minister, Fernando Haddad, who sought with the MP to cover revenue losses by maintaining the payroll tax exemption. The expectation was that the MP would generate an increase of 29 billion in revenue in 2024.
At 9:30 a.m., the release of favorable U.S. inflation data gave a downward push to Treasury bond yields, with investors increasing bets that the Federal Reserve could begin its rate-cutting cycle of interest already in September.
The U.S. Department of Labor reported that the consumer price index (CPI) remained unchanged in May, after rising 0.3% in April. In the 12 months to May the indicator increased by 3.3%, compared to 3.4% in April. Economists consulted by Reuters expect a monthly increase of 0.1% and an annual increase of 3.4%.
In the wake of the North American data, DI rates turned negative, amid a continued decline in Treasury yields. However, the movement was short-lived.
At the operational tables, the concern about the Brazilian fiscal situation was strengthened by the statements made by President Luiz Inácio Lula da Silva during an event in Rio de Janeiro. According to him, the increase in federal government revenue and the decline in interest rates will make it possible to reduce the public finance deficit without affecting public investments.
“We are cleaning house and fixing public finances to ensure fiscal balance. The increase in revenue and the fall in the interest rate will allow us to reduce the deficit without compromising public investment capacity,” he said.
The fact that Lula linked the deficit reduction to an increase in revenue – and not to spending cuts – was poorly received by some of the market. Furthermore, assessments were circulating on the tables that Haddad, due to recent political defeats, was weakened.
Against this backdrop, DI rates rose again and hit new highs in the morning, with the surge in stop loss orders intensifying the move, according to a professional interviewed by Reuters.
At the peak of the session, at 11.14am, the contract rate for January 2027 – one of the most liquid – reached 11.760%, an increase of 26 basis points compared to the previous day’s adjustment. This rise occurred despite the fact that, overseas, Treasury rates were steadily falling under the influence of the CPI.
In the early afternoon, futures rates in Brazil slowed slightly, although they remained in positive territory. But the announcement of the decision by the Fed’s Open Market Committee (FOMC) at 3pm gave new impetus to the Brazilian forward curve.
Despite keeping the base rate between 5.25% and 5.50%, as expected, the Fed indicated that it expects only one interest rate cut in 2024 – and not two cuts as expected by the North American curve. Additionally, the institution cited “modest progress” toward the 2% inflation target.
In his speech after the decision, Federal Reserve Chairman Jerome Powell said members of the institution had not yet gained greater confidence in inflation that would allow for a cut.
After the Fed’s announcement, Treasury yields pared their losses, while in Brazil DI rates accelerated their rises again.
This movement has maintained the forecast, in the Brazilian curve, that the Central Bank’s Monetary Policy Committee (Copom) will not cut the Selic base rate next week.
Nearing the close, the price curve indicated an 85% probability of maintaining the Selic rate at 10.50%. There was another 15% discounted chance that the college could raise Selic by 25 basis points this month – a probability that appeared last Friday, amid the noise over the fiscal area.
On Tuesday, the hold probability was at 92% and another 8% was priced in towards a Selic increase.
Overseas, yields continued to fall into late afternoon. As of 4:46 p.m., the yield on 10-year Treasury bonds – a global benchmark for investment decisions – fell 7 basis points to 4.328%.
Source: Terra
Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.
