Lula’s surprise re-election as Brazil's president sent the benchmark index down 13.9% on Monday, its sharpest daily drop since the COVID-19 pandemic began, and the real fell nearly 8% against the U.S. dollar, the most since 1999. The 10-year government bond yield rose 2.46 percentage points to its highest level in over a decade, erasing a rally that followed Flávio Bolsonaro's first-round win. Lula must balance expensive promises to his grassroots base, such as minimum-wage increases above inflation and a 40-hour week without pay cuts, against investor concerns over debt in a slowing economy with high inflation and rates. The Treasury canceled two planned bond auctions this week over demand concerns and soaring yields. TS Lombard expects market-calming measures, while AJ Bell says the bond yield may rise first, making Brazilian equities relatively less attractive in the short term.
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