Brazil: Upcoming 2026 elections likely to drive markets through year-end

Brazil’s October 2026 election is likely to be the main catalyst for local assets through year-end, with nominal domestic bonds offering the clearest asymmetric upside under a Bolsonaro victory.

• Brazilian local assets have performed steadily in 2026 relative to emerging-market peers: the BRL benefited from carry and favorable terms of trade, while local bonds gained from monetary easing and the gradual re-anchoring of inflation expectations.
• A stronger BRL has reduced imported inflation pressures and given the central bank more room to continue easing as economic activity slows; hard-currency sovereign bonds have been largely directionless because Brazil’s debt is mostly domestic.
• Corporate credit spans state-owned issuers such as Banco do Brasil and Petrobras, which trade near sovereign levels, as well as more idiosyncratic credits such as CSN and Raízen where active management may add value.
• The Banco Master scandal has changed the campaign: Flávio Bolsonaro has narrowed Lula’s previous lead in polls, and the election result could reshape expectations for fiscal policy, institutional stability, growth, and inflation.
• Markets may price a potential Bolsonaro victory as enabling a conservative and center-right congressional coalition capable of pursuing reforms to stop the debt snowball, while a Lula re-election could produce less additional rate widening than the compression possible under Bolsonaro.

Takeaway: The author sees nominal NTN-F bonds as offering attractive implied inflation expectations and term premium, with a more limited but still positive asymmetric opportunity in the BRL; the view depends on markets granting a Bolsonaro-led coalition the benefit of the doubt on fiscal reform.