Brazil’s government bond market had another jarring disruption on Tuesday morning, with trading in Direct Treasury securities halted amid a surge in volatility that pushed interest rates to their highest levels since October.
The turmoil occurred against the backdrop of renewed political uncertainty following new pronouncements from Senator Flávio Bolsonaro, who reiterated his pre-candidacy for the 2026 presidential race as “irreversible.”
Trading halt triggered by political jolt
The trading halt was imposed to protect regular investors from sharp price fluctuations in government bonds.
Following a visit to the Federal Police headquarters in Brasília with former President Jair Bolsonaro, Flávio Bolsonaro announced to the press.
His statement reinforced the idea that the senator has no intention of backing down from his commitment to run for president, which swiftly trickled into asset pricing.
When the temporary suspension was lifted, bond rates rose substantially.
The IPCA+ Treasury bond, the inflation-linked benchmark, has reverted to 8% real interest rate for the shortest-term note.
The longer-term IPCA+ bond, due in 2050, yielded 7% again, the most since late October.
Fixed-rate securities were also affected by the shock: the rate for the 2032 maturity increased to 13.85%.
Bolsonaro family dynamics add fuel to market fears
According to local media InfoMoney, broader Brazilian assets fell in tandem with the risk-off tone, as investors absorbed rumours that Jair Bolsonaro had been buoyed by preliminary poll figures around Flávio’s potential candidacy.
According to market talk after Tuesday’s trading, the former president had given his okay for his eldest son to advance in the campaign.
The latest declaration came after Flávio Bolsonaro met with members of the centrist bloc the previous evening.
The opposition leader in the Senate, Rogério Marinho (PL-RN), stated on Monday that Flávio’s candidacy would be “for real,” confirming the perception that the senator’s intentions were no longer exploratory.
His comments came only one day after Flávio admitted that withdrawing from the race would come at a “cost,” which markets saw as adding another layer of uncertainty to Brazil’s already complex political environment.
Investors prepare for tougher monetary signals
The intensifying political noise is flowing into larger concerns about fiscal risk, with traders predicting that Brazil’s Central Bank will maintain its benchmark Selic rate of 15% per year at next Wednesday’s policy meeting.
The prevalent view is that authorities might set a tough tone to convey vigilance in the face of rising volatility—volatility that had previously been forecast for 2026 but is now occurring earlier than predicted.
Several market experts have been taken aback by the shift in viewpoint.
Morgan Stanley analysts remarked that the news of Flávio Bolsonaro’s pre-candidacy came earlier than expected, distorting expectations for monetary easing.
The developing political background “implies a lower potential for cuts” to the Selic rate, emphasising the need for a cautious posture, as previously noted by Central Bank President Galípolo in recent communications.
Election uncertainty takes centre stage
With the 2026 election still a long way off, investors had anticipated that volatility would peak after February of that year.
Instead, the political cycle has accelerated dramatically, causing ripples in financial markets much sooner than expected.
Tuesday’s trading halt—one of several in recent weeks—showed how vulnerable Brazil’s bond market has grown to changes in the country’s political narrative.
As yields rise and risk sentiment deteriorates, market players appear to be recalibrating their expectations for both fiscal policy and the path of interest rates over the next year.
For the time being, the mix of an emboldened Bolsonaro family, early election manoeuvring, and heightened budgetary concerns is causing even experienced investors to worry.
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