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15:00 GMT · Markets wrap ›

Brazil’s Treasury cancels auctions and buys back R$31.6bn after Lula’s win

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Brazil Treasury bond auctions and buybacks.

Brazil’s National Treasury cancelled its regular auctions in the week after the 25 October run-off and spent R$31.6bn in two days buying its own bonds back. For that week the government financed itself from a cash reserve of about R$1.27tn, not from the market. When regular sales resume, it will be borrowing at long-term rates more than a percentage point higher than before the vote, and the central bank sets the Selic policy rate on 4 November.

MoneyTurkey Bonds Desk | 3 November 2026

Key points

  • On 26 October the Treasury (Tesouro Nacional) cancelled that week’s auctions of inflation-linked and fixed-rate bonds. On 27 October it also cancelled the auction of Selic-linked bills (LFTs), which it had said the day before would go ahead.
  • The Treasury then bought back R$14.81bn of bonds on 26 October and R$16.79bn on 27 October. Valor Econômico says the R$31.6bn total is the third-largest on record. Measured by the interest-rate risk it took off the market, Valor says it is the largest ever.
  • The yield on the January 2035 interbank deposit (DI) futures contract rose 263 basis points to 15.375% by 9:58 on the morning after the vote, Reuters reported.
  • With no new bonds sold that week, the government relied on its debt liquidity reserve. A Treasury debt official put the reserve at R$1.273tn at the end of September, enough to cover 7.71 months of maturing debt.
  • Rate expectations for the 4 November Copom meeting flipped. On 26 October the DI curve implied about a 75% chance of a rate rise. Copom options cited by CNN Brasil on 2 November implied a 68.8% chance of a hold at 13.75%.

What happened

President Luiz Inácio Lula da Silva won a fourth term on 25 October with 51.79% of valid votes against 48.21% for Senator Flávio Bolsonaro, according to Reuters. Many investors had positioned for a Bolsonaro win and the spending restraint they expected from it. The local rates market repriced sharply when it opened on Monday 26 October.

At 9:58 that morning the January 2035 DI contract traded at 15.375%, up 263 basis points from the previous session’s settlement price of 12.745%, Reuters reported. The January 2028 contract rose 206 basis points to 14.915%. B3, the São Paulo exchange, had to widen its daily trading limits on DI contracts twice, according to InfoMoney reporting cited by local outlets. Valor Econômico described the day’s losses in DI futures as the largest in history for a single session.

The Treasury moved before the market had settled. In Comunicado 04/2026, dated 26 October, it cancelled the regular auction of inflation-linked notes (NTN-Bs) planned for 27 October and the auction of fixed-rate bills and notes (LTNs and NTN-Fs) planned for 29 October. It said it would still hold the LFT auction on 27 October and would act “to ensure the proper functioning” of the government bond market.

That same day it switched from selling bonds to buying them. Folha de S.Paulo reported that the Treasury bought back R$14.8bn of bonds on 26 October: R$7.1bn of medium- and long-dated fixed-rate bonds and R$7.7bn of NTN-Bs. On 27 October the Treasury cancelled the LFT auction after all and held an extraordinary buyback of NTN-Bs due in 2030, 2035, 2040 and 2045. It bought 95.39% of a 4m-bond offer for about R$16.79bn. The 2035 bonds were repurchased at an average yield of 7.65%, according to Valor.

Valor said the LFT cancellation stood out because Selic-linked bills add almost no interest-rate risk to the market. The Treasury, it wrote, chose to focus only on buybacks instead of rolling over debt through another instrument while the market was under stress.

Across the curve the losses were large. Correio Braziliense reported that some DI contracts had risen by more than 250 basis points over the five sessions after the election. On Friday 30 October the April 2030 contract went from about 13.5% to 15.25%. Prices of retail Tesouro Direto bonds fell by as much as 17.19%, on the Tesouro IPCA+ 2050. The yield on the Tesouro Prefixado 2032 reached 15.78%, the highest since that bond was launched in February 2025. Indicative yields from Anbima, the capital-markets association, compiled by FIDCs.com.br, show the NTN-B 2035 at 6.81% on 23 October, 8.09% on 26 October and 7.92% on 30 October.

Who funds Brazil while the auctions are shut

The short answer is the Treasury’s own cash reserve. Regular auctions are how the government refinances its domestic debt. Folha cited a market source as saying the Treasury issues an average of about R$30bn a week. Every week without auctions is cash that does not come in. The buybacks added to that: R$31.6bn went out to dealers in exchange for bonds.

The Treasury says it can afford this. On 29 October Helano Borges Dias, head of public debt operations, said the debt liquidity reserve rose 5.33% in September, from R$1.208tn to R$1.273tn. That covers 7.71 months of maturities, up from 7.18 months in August. “It is a very comfortable cash position that gives us the freedom to manage the debt,” he said at the presentation of the monthly debt report. Federal public debt stood at R$9.382tn at the end of September.

Dias also said the Treasury saw no need for more intervention “for now” but was “ready to act at any moment”. The aim, he said, was not to set a level for rates. It was to “let the market find its own equilibrium after a strong revision of expectations”. He said trading had started to function again by Tuesday 27 October. A bank treasury official told Valor that the size of the reserve was the reason the Treasury could cancel every sale that week without difficulty.

The cost appears in yields, not cash. Luis Felipe Vital, a macro and public-debt strategist quoted by Folha, said the operation was about “reducing dysfunction, not fixing a price”. He added that it also protects the conditions for financing the debt, because without intervention the market would stay dysfunctional for longer. Sérgio Goldenstein told Valor that buybacks alone cannot fix the problem: “If the fiscal question is not addressed, buying back would be like trying to dry ice.”

Rodrigo Rosário, a partner at VLG Investimentos, told Correio that this kind of intervention is unusual but not unprecedented. The Treasury did the same in March 2026, during the oil shock that followed the start of the war in the Middle East. Rosário said further operations are possible if the rise in rates continues, but “these measures serve to correct distortions in how the market works, not to reverse trends”. Rafael Dadoorian, co-founder and head of fixed income at Convexa Investimentos, said that when the path of public debt is uncertain, “investors start demanding higher pay to finance the government, especially at longer maturities”.

Why it matters

Brazil’s market-access problem has been solved for now, but its cost has not. The liquidity reserve means the Treasury can stay out of the market for weeks without missing a payment. That buys time, not lower rates. Using Anbima indicative rates, the 2035 inflation-linked yield on 30 October was 111 basis points above its 23 October level, even after two days of buybacks. Whenever the Treasury resumes regular NTN-B, LTN and NTN-F sales, new debt will be priced at those levels unless fiscal news brings them down.

How the Treasury funds itself will also depend on monetary policy. If the Copom stops cutting rates, or raises them, Selic-linked LFTs will cost more. They are the cheapest instrument to sell in a stressed market because their price barely moves, but their running cost follows the Selic, which is 13.75% now. Moving issuance towards floating-rate debt would reduce the Treasury’s need to sell bonds into a falling market, but it would tie more of the debt’s cost to the central bank’s decisions.

Before the run-off, the DI curve priced an almost certain 25-basis-point cut in November, Reuters reported. Late on the morning of 26 October, the curve implied about a 75% chance of a 25-basis-point rise and 25% of a hold, with further rises priced for December and January. By 2 November, CNN Brasil reported that B3’s Copom options implied a 68.8% chance of a hold. Copom options are not an official B3 forecast. They are derived from traded prices and reflect what investors were willing to pay for each outcome on the reference date.

Bank economists are split. Itaú Unibanco expects a unanimous decision to stop cutting and hold the Selic at 13.75%. It says the Copom will cite an adverse global backdrop and a further drift in inflation expectations away from the target. HSBC expects the Selic to stay unchanged until March 2027 and to end 2027 at 12.50%. It says clear measures to contain spending are unlikely before the November and December meetings. BTG Pactual and Felipe Salles, chief economist at C6 Bank, also expect a hold. Rafaela Vitória, chief economist at Inter, expects one more 25-basis-point cut and then a pause in December. ASA and Rafael Cardoso, chief economist at Daycoval, also expect a cut. Cardoso says the statement will matter more than the decision itself.

What to watch

  • Copom, 3–4 November: the decision is due on the evening of 4 November, Brasília time. Watch whether a hold is described as a pause or as the end of the easing cycle, and whether the Copom explicitly mentions fiscal risk, as HSBC expects.
  • Return to regular auctions: the Treasury posted sale notices (Editais 268–270) for LFT and NTN-B on 3 November, restoring the regular Tuesday auction after the post-election pause. Results were not yet on the Tesouro leilões board when this draft was finalised (London afternoon). Watch how much it sells, the yields it accepts and whether it tilts issuance towards LFTs. LTN and NTN-F sales are still listed for 5 November.
  • More buybacks: the Treasury says it is “ready to act at any moment” if the market becomes dysfunctional again.
  • Liquidity reserve: the October monthly debt report will show how much the cancelled auctions and R$31.6bn of buybacks reduced the R$1.273tn reserve.
  • Fiscal signals: analysts quoted by Correio and CNN Brasil point to the economic team and spending measures for Lula’s fourth term as the main driver of long-dated yields.
  • Focus survey: the central bank’s weekly survey of economists will show how far forecasts made before the run-off have been revised. On 26 October it still showed two more 25-basis-point cuts this year.

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Sources

For information only. Not investment advice.

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