The first round of the presidential elections left right-wing candidate Jail Bolsonaro in a surprisingly good position to become Brazil’s next president.

As a reminder, Mr Bolsonaro is the most market-friendly candidate, advocating needed reforms and privatisations in the country. While we continue to believe that the Brazilian economy will continue with its slow recovery regardless of the outcome of the elections, the results of the first round should be positive for sentiment in the bond market.

Sovereign and corporate credit spreads in the Brazilian bond market are close to the historical average, which in combination with higher U.S. Treasury yields allow investors to generate a decent return for the risk. Thus, we maintain our positive view on medium-term Brazilian bonds.

We maintain our view that the Brazilian economy will continue to recover regardless of the outcome of the presidential elections. Nevertheless, Bolsonaro’s strong position for the second round should support sentiment and we expect a positive reaction in the bond market today.

We continue to like medium-term corporate bonds in Brazil.

Any opinions expressed here are the author’s own.

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