Oil and treasuries stress future interest rates and increase long-term risk premium

The Brazilian interest curve has risen sharply this year so far, especially contracts maturing at the long end. DI rates for January 2029, for example, increased by 7.30%, going to 10.80%, those for 2031, from 7.99%, to 11.08%, and those for 2033, from 7.81% to 11.18%.

Experts point out several reasons for this, but what is most said is that the Brazilian curve follows what happens in the United States. Luís Barone, partner and manager of Galapagos Capital, remembers that the treasury yields They also rise sharply in 2024, with the yield on US Treasury bonds maturing in ten years, for example, rising more than 12%.

“There is a very strong correlation between the price of oil and American interest rates. When the market imagines that inflation could get higher, it ends up asking for more premium to buy a bond”, explains the manager’s specialist. “Oil, which is responsible for almost 50% of the commodity index, two months ago was hitting US$67 a barrel and now it is almost US$90”.

Oil has been rising throughout the year due to a series of factors. Yesterday, futures contracts closed at their highest levels since October 2024, after the surprise with data from the industrial sector in China and the United States. Other than that, data from China, tensions in the Middle East and Russia also largely explain the advance.

For Barone, the advance in oil made investors even more reticent with the stronger than expected macroeconomic data in the United States. The combination of more expensive fuels and a still heated economy raises the fear that the rise in prices there may take time to return to within the target – which would prevent the Federal Reserve from being more lenient in its monetary policy.

Finally, he also remembers that there is a correlation between American and Brazilian interest rates. “When it goes up, we have an impact on Brazilian interest rates. One thing leads to another,” he says.

Raquel de Sá, head of economics at Rico, goes in the same direction. “Although expectations for the Selic and the short-term interest rate determined by the Central Bank have not changed, the market is already looking at the terminal Selic. Interest is always relative. If American sovereign bonds are paying more in the long term, Brazil’s relative risk ends up being greater, because it’s all relative”, she contextualizes.

With Brazilian sovereign bonds paying more, trying to maintain their attractiveness compared to American ones, private contracts also have to offer higher premiums. “If the government pays X to investors, with few exceptions, companies will pay more than X, since the sovereign bond, also with few exceptions, is a bond with the lowest risk.”

Tax also helps boost the Brazilian curve

Regarding local causes, mainly the Brazilian fiscal one, experts are divided in seeing an impact on the interest curve. Barone, for example, sees that issues relating to the Federal Government, for now, have little influence on the dynamics of rates, but de Sá thinks the opposite.

“The greater the fiscal uncertainty, the greater the pricing of risk tends to be in the long term. This year we saw a lot of uncertainty about the government’s revenue measures. The year actually started well, with a good increase in revenue in January, but in February it came with a smaller increase than expected”, explains the economist at Rico.

She also mentions that there are, for now, a series of measures paralyzed in Congress, such as the reinstatement of payroll and the end of the aid program for the events sector. “There are still many challenges in Congress for the government to be able to maintain the ambitious goal of balancing the accounts this year”, she says.

Daniel Leal, fixed income strategist at BGC Liquidez, corroborates this. “Despite the big driver coming from abroad, our curve has also reacted with concerns about fiscal policy, especially after the result of public accounts in February, which was a little worse than expected”, he says.