By Fabricio de Castro
SAO PAULO (Reuters) – DI rates closed lower in Brazil on Thursday on contracts from January 2026 onwards, on a day marked by technical moves, with some agents taking advantage of the latest highs to make profits, while abroad Treasury bond yields rose.
At the end of the afternoon, the DI (Interbank Deposit) rate for January 2025 – which reflects bets on the very short-term Selic – was at 11.468%, compared to 11.456% in the previous adjustment. The contract rate for January 2027 was 13.33%, down 5 basis points from the 13.375% adjustment.
Among longer contracts, the January 2031 rate was 12.99%, down 5 basis points from the previous adjustment’s 13.043%, and the January 2033 contract had a rate of 12.88%, compared to the 12.923%.
In the morning, DI rates swung higher, in line with the sharp rise of the real against the real and the fall of the currency, in a session marked by global risk aversion amid the escalating conflict between Russia and Ukraine.
Not even October’s federal tax collection data, which pleased the market, was enough to reduce premiums on the curve. The Federal Revenue Agency reported that revenue increased in real terms (adjusted for inflation) by 9.77% in October compared to the same month a year earlier, to a total of 247.92 billion reais. This was the best result of the month in the historic series that began in 1995.
In the accumulated period from January to October, revenue was R$2,182 trillion, 9.69% more than that recorded in the first ten months of 2023, already discounting the correction for inflation. The data also represents a record for the period.
Over the course of the afternoon, however, the fixed income market landscape changed. Around 2pm, rates lost steam and moved into negative territory, especially for longer-term contracts.
Five professionals from different institutions interviewed by Reuters did not give a specific reason in the news story for the rate drop.
According to a professional from a large investment bank, some market participants “took” the rates at the opening of operations, predicting the worst for the day, but began to give them back in the afternoon, as no significant news emerged.
In addition to the specific movement of the day, some agents took the opportunity to take profits after recent rate increases in previous sessions.
“I see no apparent reason for this closing of the curve. There is no news that has led to this,” commented Felipe Izac, partner at Nexgen Capital, in the afternoon. “Probably during the holiday season, the market is making a correction move and making gains due to the sharp rise recently,” he added.
After recording a high of 13% (up 8 basis points since the adjustment) at 10:48 am, the DI rate for January 2033 hit a low of 12.83% (down 9 basis points) at 3 pm :23. .
The movement occurred in parallel with the news that the federal police indicted former President Jair Bolsonaro for attempted coup d’état, as well as 36 other people, including Bolsonaro’s deputy candidate in the 2022 elections, reserve general Walter Braga Net.
Professionals interviewed by Reuters, however, said political news had not affected DI prices, which remained sensitive to the fiscal issue.
“In some longer periods, like (January) 2028 and 2029, we had a more pronounced closure (of rates),” João Ferreira, partner at One Investimentos, commented in the afternoon. “There is a market expectation that (the government’s fiscal package) will be released next week,” he explained.
On the short end of the curve, rates continued to price in increased chances of the Central Bank increasing the Selic base rate by 75 basis points in December, currently at 11.25% per annum.
Nearing the close, the Brazilian curve was pricing in a 65% chance of a 75 basis point increase in the Selic next month and a 35% chance of a 50 basis point increase. On Tuesday the percentages were 70% and 30% respectively.
At 4.44pm the global benchmark for investment decisions rose 3 basis points to 4.434%.
How do fluctuations in DI rates impact investment decisions in Brazil?
Interview between Time.news Editor and Felipe Izac, Partner at Nexgen Capital
Editor: Welcome, Felipe! It’s great to have you with us today to discuss the recent movements in Brazil’s DI rates and the implications for investors.
Felipe Izac: Thank you for having me! It’s a pleasure to share insights on the current market dynamics.
Editor: To kick things off, can you provide a brief overview of what the DI rates are and why they are significant for Brazil’s economy?
Felipe Izac: Absolutely! The DI, or Interbank Deposit rates, serve as a benchmark for short-term interest rates in Brazil. They reflect market expectations of the Selic rate — Brazil’s central bank interest rate. These rates are crucial because they impact everything from loan rates to investment returns, influencing economic activity as a whole.
Editor: We’ve seen some interesting fluctuations in the DI rates lately. For instance, the January 2031 rate dropped from 13.043% to 12.99%. What do you attribute this decline to?
Felipe Izac: Great observation! The decrease in longer-term rates can be attributed to a mix of profit-taking and market corrections after a series of recent rate hikes. On Thursday, the market was initially responding to global sentiments — notably the escalating Russia-Ukraine conflict — which typically creates risk aversion. However, as the day progressed, the market corrected itself, especially since there were no significant news drivers to maintain that upward pressure on rates.
Editor: Speaking of news, the federal tax collection data was released, indicating a 9.77% real increase in October compared to the year prior. Wouldn’t that normally influence investor sentiment positively?
Felipe Izac: You’d think so, but it appears that the market was already holding a cautious stance. Even with record tax revenues, the broader global uncertainties and risk aversion seemed to overshadow local developments. The data was indeed encouraging, but market participants may have been more focused on external factors and earlier rate increases.
Editor: It sounds like the market environment is very complex right now. Can you explain what you mean by “market participants took the opportunity to take profits”?
Felipe Izac: Certainly! After observing a significant rise in DI rates during previous sessions, some investors might have predicted a potential retracement. As rates peaked, they saw an opportunity to lock in gains from earlier positions. This profit-taking behavior can lead to a softening of rates as selling pressure increases, which is what we saw by the afternoon.
Editor: Given the current landscape, what should investors keep in mind as they navigate this environment?
Felipe Izac: Investors should remain vigilant and prepared for volatility. While short-term fluctuations might offer opportunities, it’s important to maintain a long-term perspective and consider the broader economic indicators. Adapting to changes quickly and being ready to capitalize on corrections can be key strategies moving forward.
Editor: Thank you for your insights, Felipe! It’s clear that the dynamics in Brazil’s fixed income market are intricate and influenced by both local and international factors.
Felipe Izac: Thank you for having me! It’s a constantly evolving situation, and I appreciate the chance to discuss it with your audience.