Interest market anticipates caution before BCs and rates stand aside

Future interest rates closed Monday, the 18th, close to stability, after spending the day with an upward and downward bias, without deviating from Friday’s adjustments. The laterality of rates was determined by opposing pressures, with the appreciation of the exchange rate and the marginal improvement in IPCA expectations in Focus on the one hand, and the advance in oil and the volatility of Treasuries on the other. In the background, there was waiting for monetary policy decisions from the Monetary Policy Committee (Copom) and the Federal Reserve (Fed, the North American central bank), on Wednesday, which limits the formation of firm positions.

The rate of the Interbank Deposit (DI) contract for January 2025 closed at 10.455%, at a maximum of 10.419% in Friday’s adjustment, and that of the DI for January 2026, at 10.11%, of 10. 06% in the last adjustment. The DI for January 2027 went from 10.31% to 10.36% (maximum) and the DI for January 2029, from 10.88% to 10.91%. The DI for January 2031 projected a rate of 11.22%, compared to 11.20% in the last adjustment.

Monday did not have a strong driver for business capable of dispelling caution before central bank decisions, even reflected in the volume of contracts traded, below the standard average.

The exchange rate at R$4.85 is good news for the inflation situation, but, on the other hand, oil prices have risen again, maintaining a latent risk of new fuel readjustments.

Abroad, the Treasuries curve did not show uniform behavior in long maturities, also reflecting the Fed’s waiting period. The yields on short bonds remained high, with the return on the 5-year T-Note above 5%, given the perception that, even though the monetary tightening cycle in the United States may have ended, interest rates in the United States will remain high for a long time.

In the mapping for this Wednesday, the market seems relatively calm for the Copom, but apprehensive about the Federal Open Market Committee (Fomc, in English). Not because of the decision itself, but because of future signals, especially coming from “dot plots”.

In both cases, there is consensus around a 50 basis point drop in the Selic and maintenance of the Fed Funds rate between 5.25% and 5.50%, respectively.

For the Copom, the general perception is that directors will reinforce the indication of maintaining the current dose for the next meeting, but there is great expectation for clues from the North American central bank on whether the cycle is over or not. After the meeting, there will be a press conference by the institution’s president, Jerome Powell.

For the Brazilian BC committee, the perspective is that the collegiate will continue, via language, trying to avoid at all costs a migration of bets to larger doses of cuts, of 75 points, at the next meeting, as it did at the August meeting. To do so, reference should be made to inflation expectations that are still unmoored, the cloudy external scenario and also fiscal risks.

The fixed income manager at Sicredi Asset, Cassio Andrade Xavier, states that the conditions for accelerating the pace of cuts to 75 points in November are not yet “on the table”, but if directors give way, the market will reinforce this bet. “It is difficult for the DIs of January 2026 and January 2027 to retest the lows without seeing an increase in the pace of decline, but they are also far from the highs since it was realized that the cycle was going to start,” he said.

The drop in inflation estimates in this Monday’s Focus Bulletin is still timid considering how far they have to go to get back to their targets, but it is still a good sign after weeks of stagnation and even slight progress, even more so. taking into account that they were accompanied by an improvement in GDP projections. For 2023, the median IPCA fell from 4.93% to 4.86% and, for 2024, from 3.89% to 3.86%. For GDP, the expectation for 2023 rose from 2.64% to 2.89% and, for 2024, from 1.47% to 1.50%.