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BRAZIL: Fiscal Concerns Weigh On Long-End Swap Rates

BRAZIL
  • Despite BCB President Campos Neto’s remarks earlier that that any necessary adjustment in the Selic rate would be gradual, which helped to anchor the front-end of the DI swaps curve, long-end swap yields remain notably higher today. While front-end yields have fallen by around 10bp, as the market pared back September rate hike expectations slightly, yields in the belly have risen by more than 20bp and long-end yields by as much as 30bp.
  • Concerns about the fiscal outlook, ahead of the presentation of the 2025 budget to Congress this evening are likely weighing on the longer end. To recap, anonymous sources suggest that the budget plan will not include the structural spending cuts being sought by the market, with Finance Minister Haddad reported to be turning to income measures once again.
  • Earlier this week, Haddad said he is more comfortable with the 2025 budget than the one for 2024, which he said underestimated ordinary revenues and overestimated extraordinary ones. However, the market will be keenly attuned to the details when the budget is presented later tonight.
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