A drop of 1.14 percentage points in just a few hours. That was the size of the fall in 2029 futures interest rates on Monday (5), almost five times the 0.25-point cut the market expects from the Central Bank at its next decision. The turmoil knocked Tesouro Direto offline, the National Treasury platform that lets small investors buy Brazilian federal government bonds online, and anyone who tried to trade in the morning found the system closed.
The Treasury itself blamed the shutdown on "high market volatility this morning," according to Valor Investe. The platform resumed trading later in the day, but the rates on offer had changed. The IPCA+ 2035 bond, for instance, started paying inflation plus 6.99% a year, down from 7.66% on Friday (2), according to Folha.
An election bet
It was the first trading session after the first round of Brazil's presidential election. Flávio Bolsonaro (PL), a senator and son of former president Jair Bolsonaro, finished ahead with 47.03% of valid votes, against 45.16% for the incumbent, Lula (PT), and the two meet in a runoff on October 25. Part of the market is betting that a PL government, backed by a more right-leaning Congress, could pass a more conservative fiscal agenda from 2027, which lowers the perceived risk of Brazilian bonds, according to an analysis by brokerage Monte Bravo cited by Valor Investe.
Understanding it. Futures rates are contracts traded on B3, the Brazilian stock exchange, that reflect the market's bet on the path of the Selic, the country's benchmark interest rate. When those rates fall, the price of already-issued government bonds rises, an effect known as marking to market. In practice, anyone who already held those bonds saw their money grow on Monday.
In the futures market, the fall was so sharp that B3 widened the trading limits on DI contracts, which track the benchmark rate, for all maturities. For maturities above seven years, the ceiling became 1.31 percentage points up and 1.43 points down. Even so, the contracts went into auction mode, a mechanism that pauses trading when prices breach the allowed band, according to Valor Investe.
By the end of the session, the 2029 DI rate had retreated 114 basis points, to 12.61%, and the 2028 rate had fallen 84 basis points, to 12.77%, according to Folha. Each basis point equals 0.01 percentage point. On the size of the record, the surveys disagree: Valor Investe calculated the largest daily rate drop in the Tesouro Direto historical series, which began in 2005, while InfoMoney points to the second largest among fixed-rate bonds.
On the stock market, the Ibovespa closed up 7.7%, above 206,000 points, its first close ever above the 200,000 mark, according to g1. The previous record was 198,000 points, set in April. The dollar, meanwhile, fell 4.12% to R$ 5.00.
The move can still reverse before the October 25 vote. For Gesner Oliveira, an economist at GO Associados and professor at Fundação Getulio Vargas (FGV), fixed-rate and inflation-linked bonds could post losses if the runoff result contradicts what is now priced in, because rising rates push bond prices down in the short term, according to InfoMoney. "The runoff is a new contest, and the gap between the candidates is reversible," he said.