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BRAZIL: DI Swap Rates Top 14% Amid Fiscal Concerns

BRAZIL
BulletEM BulletEmerging Market News
  • DI swap rates remain under significant pressure today, following the disappointment with the details of the government’s spending cut plan, with yields up by another 37bp at the long-end of the curve, taking the two-day move to over 75bp. Meanwhile, USDBRL remains 0.9% higher on the day around the 6.00 level, which will reinforce central bank concerns about the FX rate impacting inflation expectations.
  • Yields on the DI swap curve now top 14% around the 18-month segment, which suggests that the BCB hiking cycle may extend beyond current analyst expectations. In this week’s BCB Focus survey, the 2025 year-end Selic rate forecast rose to 12.25%, from 12.00%, while the highest forecast on the latest Bloomberg survey is from Itaú for a Selic rate of 13.50% in the second half of next year.
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  • DI swap rates remain under significant pressure today, following the disappointment with the details of the government’s spending cut plan, with yields up by another 37bp at the long-end of the curve, taking the two-day move to over 75bp. Meanwhile, USDBRL remains 0.9% higher on the day around the 6.00 level, which will reinforce central bank concerns about the FX rate impacting inflation expectations.
  • Yields on the DI swap curve now top 14% around the 18-month segment, which suggests that the BCB hiking cycle may extend beyond current analyst expectations. In this week’s BCB Focus survey, the 2025 year-end Selic rate forecast rose to 12.25%, from 12.00%, while the highest forecast on the latest Bloomberg survey is from Itaú for a Selic rate of 13.50% in the second half of next year.