Future interest rates rise more than 20 basis points on a day of rising yields in the US and IPCA in Brazil

DI rates closed sharply on Wednesday, climbing above 20 basis points for maturities from 2026 onwards, reflecting rising Treasury yields abroad, accelerating HICP and lingering concerns over the fiscal environment in Brazil .

At the end of the afternoon, the DI rate for January 2025 – which reflects bets on the Selic in the very short term – was at 11.11%, compared to 11.086% in the previous adjustment.

The rate for January 2026 was 12.5%, up 20 basis points from the 12.299% adjustment, and the January 2027 maturity was 12.58%, up from 12.332%.

Among longer contracts, the rate for January 2031 was 12.53%, up 26 basis points from 12.269%, and the contract for January 2033 had a rate of 12.45%, up from 12.195%.

The main factor for rising future rates in Brazil on Wednesday came from abroad, according to traders polled by Reuters.

The expectation that the Federal Reserve will cut interest rates by just 25 basis points in November – and not 50 basis points – supported the rise in Treasury yields, which also supported the Brazilian curve.

“Since the release of last week’s payrolls, we have had a sharp revaluation of Treasuries, with the market adjusting the pace of cuts to 25 basis points and some houses even questioning whether there will be a cut in the U.S. at November”, underlined the director of the trading desk of the C6 Bank, Felipe Garcia.

“This has contaminated emerging markets, and the dollar has also strengthened. Today, Brazil performs even worse than other emerging markets,” Garcia added, justifying the constant increase in DI rates.

According to Matheus Spiess, analyst at Empiricus Research, the Brazilian curve also reflects the data from the Broad National Consumer Price Index (IPCA), released this morning by the Brazilian Institute of Geography and Statistics (IBGE).

The official inflation indicator increased by 0.44% in September and accumulated an increase of 4.42% in the 12 months, percentages close to the projections of economists heard by Reuters, of 0.46% on the month and 4 .43% over 12 months. However, September’s IPCA registered a strong acceleration compared to August’s result, when it fell by 0.02%.

“This is a very strong acceleration, an acceleration that pushes 12-month inflation close to the ceiling (of the inflation target),” Spiess said. “This raises concerns in the market, which knows that the price of Selic will have to remain high.”

The center of the BC’s continuous inflation target is 3%, with a margin of 1.5 percentage points (ceiling of 4.50%). Currently, the Selic base rate is 10.75% per annum.

The fear that the Lula government will not be able to rebalance the public finances also continues to permeate the business world, acting as a third factor for the constant increase in premiums.

In the afternoon, after the publication of the minutes of the Fed’s latest monetary policy meeting, rates returned to their maximums in some points of the Brazilian curve. At 3.51pm, the DI rate for January 2033 – one of the most liquid in the long term – reached a peak of 12.48%, an increase of 29 basis points from the previous day’s adjustment.

Nearing the close, the curve priced in a 95% chance of a 50 basis point increase in the Selic in November, versus a 5% chance of a 75 basis point increase. On Tuesday the percentages were 98% and 2% respectively.

Abroad, Treasury rates continued to rise steadily, after Fed minutes showed that a “substantial majority” of policymakers at their September meeting supported starting the interest rate cutting cycle with a reduction of 0.50 percentage points of the base rate. However, there seemed to be even more agreement that, with the initial move, the Fed would not commit to any specific pace of cuts in the future.

Much of the attention on Thursday will be focused on the morning release of the US Consumer Price Index (CPI) for September. The data has the potential to change the North American curve and, consequently, DIs in Brazil.

As of 4:37 p.m., the yield on 10-year Treasury bonds – a global benchmark for investment decisions – rose 3 basis points to 4.063%.

Source: Terra

Rose

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