Trading in government bonds is suspended for the second time amid expectations for the name of a new Finance Minister.

Bruna Furlani, Infomoney - Trading in Treasury Direct bonds was halted again around 13 pm, in the second interruption during the session this Friday (18). As a result, investors can only buy and sell bonds such as the Selic Treasury bond.

When there are strong price and rate fluctuations, the Treasury temporarily suspends sales and purchases to prevent investors from temporarily closing transactions at a price that could quickly become outdated.  

After starting the day with future interest rates falling, rates rose again following news that Fernando Haddad is expected to return to Brazil as the frontrunner to become Finance Minister. This information comes from columnist Lauro Jardim of the newspaper... The GlobeAccording to the journalist, not a single member of Luiz Inácio Lula da Silva's (PT) delegation at COP 27 left Egypt without the feeling that Haddad will be the name chosen by the president to head the ministry.

Statements made by Roberto Campos Neto, president of the Central Bank, during an event this morning, also weighed on interest rates. According to him, caution is needed regarding inflation in Brazil. "We have a clear message that the fiscal framework has limits," he said.

The president of the Central Bank reinforced that it is not possible to rule out further increases in the Selic rate, depending on the fiscal policy to be adopted by the next government. "If we believe that convergence will not happen due to fiscal reasons, we will react," he stated. He noted that the poor population is the most affected when conditions are adverse.

Before the suspension, the market for government bonds traded on the Direct Treasury platform was operating with mixed interest rate movements. Interest rates offered by most inflation-linked bonds were stable, while returns on fixed-rate bonds started to rise again at 12:20 PM today.

The highest real return was offered by the IPCA+2045 Treasury bond, at 6,11%, above the 5,97% seen earlier in the morning and in line with the 6,10% recorded the previous day.

Among the fixed-rate bonds, all returned to offering returns above 13%. The highest rate offered was 13,68%. This return was offered by the 2025 Fixed-Rate Treasury bond. The previous day, the bond offered an interest rate of 13,41%.

Bolsa Família and Roberto Campos Neto

In the political arena, the elected government plans to compromise on some aspects to try to approve the Transition Amendment, but will not give up on the fact that the increase in spending will be valid for four years, according to reporting by the newspaper. FSPThere is a guideline against negotiating a shorter deadline, especially in the Senate, the newspaper states.

The intention is to approve the measure in the House with a strong vote so that it arrives in the Chamber of Deputies with force. Some of Lula's allies say that, if the measure were to be approved for only one year, the political cost of approving a Constitutional Amendment Proposal (PEC), which requires 308 votes in the Chamber of Deputies and 49 votes in the Senate, as the report shows, would not be necessary.

In the economic arena, the president of the Central Bank (BC), Roberto Campos Neto, argued today that there must be a convergence between fiscal discipline and social demands, with fiscal and economic policies needing coordination to achieve results. While avoiding further comments on the draft of the Transition Amendment sent to Congress the day before yesterday, he said there is much uncertainty about the size of the extra spending that will be authorized for the new government in 2023.

"If we believe that convergence will not happen through fiscal measures, we will react," stated the president of the Central Bank. He noted that the poor population is the most affected when conditions are adverse.

“It’s important to have fiscal discipline and to look at social issues,” he emphasized. “Brazil faces the challenge of communicating that it has fiscal discipline.” He further added that uncertainty, in addition to restricting the scope for spending, plays a significant role in the actions of the monetary authority.

Although he has said several times that it is not his "job" to comment on fiscal policy, he remarked that, in addition to the (proposed) extra spending figure, communication about it is also important. Regarding the negative perception the markets had after the presentation of the draft, Campo Neto said that it is necessary to understand that the market "is not a monster or an entity, but a machine that allocates resources." Thus, it is natural that it reacts when there is strong uncertainty.

In his presentation today, the president of the Central Bank pointed out that an additional R$ 175 billion in spending could push the primary result for 2023 to a deficit of 1,5% of GDP, compared to the previous forecast of 0,8% of GDP. The debt could also rise between 2022 and 2023 from 77,7% to 81,9%, or even more.

Interest rates in the US and Europe

In the external scene, investors are reacting to comments made by Federal Reserve (Fed, US central bank) officials at events in the United States. The day before (17), the speech by the president of the St. Louis Fed, James Bullard, gained prominence, suggesting that terminal interest rates could reach the level between 5% and 7%, that is, higher levels than the market is currently pricing in.

Currently, 29% of financial agents believe that interest rates in the United States should end December of next year between 4,50% and 4,75%. Only 11,4% of bets are concentrated on the rate ending the period in the range between 5,00% and 5,25%, according to the CME Group.

Meanwhile, in Europe, the president of the European Central Bank (ECB), Christine Lagarde, said that the institution will continue to raise interest rates and may even need to restrict economic activity to control inflation, highlighting monetary policy as the bank's main instrument for reducing its balance sheet.

The eurozone's annual consumer inflation rate (CPI) reached 10,6% in October compared to the same period last year. A year earlier, the rate was 4,1%. The data was released yesterday (17) by the European Union's statistics office, Eurostat. On a monthly basis, inflation was 1,5%.

Given the persistent inflationary dynamics in the region, market participants are divided between an increase of 50 basis points (0,50 percentage points) and 75 basis points (075 percentage points) in December.