Brazilian Future Rates Decline on Oil Price Relief Amid Easing Geopolitical Tensions
Brazilian future interest rates fell, particularly in intermediate maturities, driven by easing international oil prices despite ongoing US-Iran tensions, reinforcing expectations for continued Selic rate cuts.
In 15 seconds
- DI Jan 2027 rate fell from 14.04% to 13.990%
- Brent crude fell 2.20% to $76.30/barrel
- WTI crude fell 1.96% to $72.08/barrel
- Economist forecast Selic rate at 13.25% by year-end
The Bottom Line
- Brazilian future interest rates saw broad declines, with intermediate maturities leading the move, as international oil prices retreated.
- Geopolitical risk aversion eased despite ongoing US-Iran exchanges, as market participants perceive efforts to avoid a large-scale conflict.
- Analysts anticipate the Brazilian Central Bank (Copom) will continue its Selic rate cutting cycle, projecting 13.25% by year-end, with limited inflation impact from oil.
Brazilian future interest rates closed lower on Thursday, with the most significant declines observed in intermediate maturities. This movement was primarily driven by a moderation in international oil prices. Despite continued mutual attacks between the United States and Iran, the commodity partially absorbed the sharp gains from the previous session, reducing risk aversion and prompting the market to reverse some of the rate increases seen earlier.
At the close of trading, the January 2027 Interbank Deposit (DI) contract rate saw a slight decrease from 14.04% to 13.990%. The January 2028 DI rate fell from 14.17% to 14.020%, while the January 2029 DI rate dropped from 14.36% to 14.205%. The January 2031 DI rate receded from 14.455% to 14.340%.
Even amidst uncertainties surrounding the ongoing conflict in the Middle East, crude oil futures contracts ended the day lower. Brent crude, the global benchmark for September delivery, declined 2.20% to $76.30 per barrel. West Texas Intermediate (WTI), the American benchmark for August delivery, fell 1.96% to $72.08.
Tensions between Washington and Tehran remain elevated, with the US launching another military offensive against Iranian territory on Wednesday night. In response, Iran's Revolutionary Guard claimed to have attacked US-linked bases in Gulf countries. Nevertheless, a segment of the market perceives that both sides are seeking to avoid a large-scale conflict.
André Valério, Senior Economist at Inter, shares this assessment, stating he does not expect a significant deterioration of the scenario or a closure of the Strait of Hormuz, despite Iran's threats. According to Valério, although Washington revoked Tehran's authorization to sell oil, this measure only prevents dollar-denominated transaction clearing, without hindering Iranian exports to China. "Our premise is that some stability, albeit fragile, will be achieved, which would prevent a significant deterioration in oil prices," he affirmed.
Valério assesses that the impacts on inflation and monetary policy are likely to be limited, as the risk of a significant disruption to global oil supply remains low. Consequently, he maintains the expectation that the Federal Reserve (Fed) will not resume interest rate hikes in the short term and that the Brazilian Central Bank's Monetary Policy Committee (Copom) will continue its Selic rate cutting cycle, bringing the rate to 13.25% by year-end. "We do not rule out the risk of a premature pause in the Selic cutting cycle, especially if a Super El Niño occurs as predicted. However, we expect this negative impact to be concentrated in 2027, without affecting inflation within the relevant horizon, which would, in our view, allow Copom to proceed with its calibration cycle throughout this year," he added.
US Treasury yields also declined on Thursday, reinforcing the relief in local fixed income markets. By approximately 6:00 PM, the yield on the 10-year T-note fell from 4.577% to 4.558%, while the 30-year T-bond yield receded from 5.078% to 5.068%.
In addition to the more favorable external environment, the market positively received the National Treasury's auction of fixed-rate bonds. After last week's offering pressured rates, Thursday's operation indicated that the Treasury effectively gauged investor demand, favoring the performance of the interest rate curve. The Treasury sold the entirety of its offering, placing 9 million LTNs with a financial volume of R$6.68 billion, and 4.15 million NTN-Fs, which moved R$3.50 billion. This result aligned with the expectations of Necton Investimentos fixed income trader, Marcus Soares, who had anticipated consistent demand, particularly in the intermediate maturities, supported by a moderate opening of the interest rate curve and secondary market flow.
Market impact
Market Impact
Brazilian Fixed Income: Bullish. The decline in future interest rates, particularly in intermediate maturities, signals reduced risk premium and improved sentiment. This is reinforced by easing global oil prices and a well-received National Treasury auction, which successfully met investor demand for fixed-rate bonds. The outlook for local rates is constructive, supporting bond valuations.
Global Fixed Income: Neutral to slightly Bullish. The concurrent decline in US Treasury yields (10-year T-note down from 4.577% to 4.558%) reflects a broader easing of risk aversion and potentially tempered inflation expectations, providing a supportive backdrop for global bond markets.
Commodities (Oil): Neutral. While Brent and WTI crude prices declined by 2.20% and 1.96% respectively, the underlying geopolitical tensions between the US and Iran persist. The market's perception of both sides seeking to avoid a large-scale conflict provides temporary relief, but volatility remains a key factor. No specific equity tickers are directly impacted by this commodity movement in the context of this report.
Brazilian Equities: Bullish. A declining interest rate environment typically supports equity valuations, especially for rate-sensitive sectors. The expectation of continued Selic rate cuts by Copom (forecast to 13.25% by year-end) enhances the attractiveness of Brazilian stocks for investors seeking growth and yield.
Brazilian Real ($BRL): Neutral. The impact on the currency is mixed. While lower domestic interest rates could reduce the carry appeal for foreign investors, easing geopolitical risk and a more stable inflation outlook could provide some support. The overall sentiment for the $BRL is balanced, contingent on further developments in global risk appetite and local monetary policy.
Market Pulse
What's your sentiment on this market signal?
One vote per reader per article. Anonymous.
Related Insights
More intelligence from the same asset class to keep your session in flow.
Argentina IMF Visit: Georgieva Confirms Amidst $ARGT Bond Payment Expectations
Argentina's Economy Minister Luis Caputo announced IMF MD Kristalina Georgieva's visit, signaling strong ties ahead of crucial bond payments due July 9, 2026.
Tesouro Direto Assets Surge 47% YoY as ETFs Gain Ground | $B3SA3
B3 reports a 47% YoY surge in Tesouro Direto fixed-income assets, driven by high interest rates and expanding retail investor participation in Brazil.
Fed Hawkish Shift Under Warsh Triggers Treasury Sell-Off: $TLT $SHY
US Treasury yields surged as the FOMC under Kevin Warsh signaled potential rate hikes, completely reversing Wall Street's early-2026 rate-cut expectations.