American interest is currently at its peak in two decades, and its impact on Brazilian investors is being observed.

Individuals who are currently 20 years old have never witnessed the US Treasury bonds’ rates at their current levels, which exceed previous historical highs.

This has significant effects on the Brazilian market, unlike anything they have experienced in many years.

On Friday, the 30-year American mortgage rate hit 5.472% annually, marking the highest level in 22 years since 2004.

The 10-year role, used as an indicator for real estate financing costs in the US, has reached its highest point since July 2007 at 5,169%.

American interest has been increasing over the past two months due to the rising investor anticipation of the Federal Reserve implementing a new monetary policy in October.

The 2-year maturity, known for its sensitivity to Federal Reserve decisions, remains steady at an annual rate of 4.881%, the highest since mid-2024.

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When interest rates go up in the fixed income market, it indicates that the value of the security has decreased, resulting in a lower overall portfolio value for investors holding these securities.

Flow alteration

Long-term interest in the US has responded to a mix of stronger-than-anticipated American economic data, more assertive remarks from Federal Reserve officials, and elevated oil prices.

The likelihood of an increase in interest rates by the Federal Reserve at the October meeting has risen from 55% last week to 70%, as reported by the CME Group FedWatch tool.

The high interest rates in America act as an external shock for the Brazilian economy, as they draw global capital back to the United States’ fixed income investments.

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Investors in Brazil are seeking higher returns, leading to an increase in future interest contract rates, benefiting companies and consumers.

Future interest rates increase on Friday due to external pressure, primarily in response to IPCA-15 surpassing expectations.

The index rose by 0.70%, surpassing the market’s expected 0.53% increase.

IPCA-15 recorded a 3.82% increase in the year and a 4.47% rise over 12 months, mainly driven by a 2.07% increase in Housing. This data suggests that the Central Bank may have limited flexibility to accelerate the reduction of the Selic rate, currently at 13.75% per year.

At around 10:20, the interest rate for DI contracts expiring in January 2029 increased by 0.69% to 13.89% per year. Similarly, the interest rate for DI contracts expiring in January 2030 also increased by 0.57% to 14.015% per year.

The dollar strengthens as more resources flow into the American market, causing the American currency to rise by 0.13% to R$ 5.1985.

A more robust dollar can reduce inflation in Brazil by increasing the cost of imported goods and materials. If prices continue to rise consistently, the Central Bank will have limited flexibility to lower the Selic interest rate.

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• US interest rate increase boosts Brazilian IPCA+ Treasury yields

Global increase in interest rates

If the forecast for Brazilian interest rates leans towards an extended period of high levels, financial conditions will stay more challenging, potentially impacting credit availability and raising the risk for heavily indebted firms.

A prolonged period of high interest rates can cause the currency to depreciate and highlight the importance of fixed income investments in Brazil.

Debt market stress has spread worldwide, with Japan’s 10-year JGB yield hitting its highest level since August 1996, and UK gilts and German bunds also experiencing significant increases in Europe, pushing several continent titles to multi-year highs.

Analysts have noted that the recent rise in interest rates is no longer solely due to worries about the US budget deficit. Instead, various negative factors like fiscal, economic, and geopolitical pressures, along with persistent high inflation, are contributing to this increase.

A more stringent Federal Reserve?

Investors are questioning whether the Fed is moving towards a more aggressive cycle of higher interest rates due to changing expectations of future inflation, which is reflected in the rise of long-term American interest rates.

In the immediate future, local markets can expect increased interest rates and heightened volatility due to the new global reality.

It is advisable for individuals with inflation-linked or fixed-income securities in their portfolio to remain patient and wait until the following year, after the elections, to gain a clearer understanding of the new government’s policies.

Up to 40% of long-term Brazilian interest behavior can be influenced by the external scenario, according to research conducted by BTG Pactual.