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BRAZIL · MARKETS
Key Facts
- The country Brazil is Latin America’s largest economy; President Lula won re-election on Sunday 25 October.
- What happened Brazil’s five-year CDS, the main country risk gauge, rose 26% to 151.7 points on Monday.
- The record That is the highest CDS reading since June 2025, after a six-year low on 6 October.
- The cost Insuring US$10 million of Brazilian debt now costs about US$151,700 a year, from US$120,200.
- Power Index Brazil ranks 1st of 14 in The Rio Times Latin America Power Index, with 75.0 points (October 2026 edition).
Prediction markets · who wins the runoff
Implied chance of winning Brazil’s presidency on 25 October, from traders’ prices.
Polymarket
Flávio Bolsonaro – · Lula – (US$249 million traded)
Kalshi (regulated in the US by the CFTC)
Flávio Bolsonaro 0.4% · Lula 99.6%
As of 25 October, 11:40 pm ET (03:40 Lisbon), updated every 20 minutes. Prices are bets, not polls, and can move fast.
Why we show this: prediction markets turn real-money bets into a live probability that moves within minutes of the news, which is why investors, campaigns and newsrooms in the United States now follow them closely. We show them next to polls and official results, never instead of them.
Brazil country risk, the yearly price investors pay to insure Brazilian government debt against default, jumped 26% in early trading on Monday 26 October. The five-year credit default swap (CDS) rose to 151.7 points from 120.2 on Friday, the highest since June 2025.
Investors had bet on Flávio Bolsonaro, the conservative senator who led the first round on 4 October. Lula’s victory forced a fast repricing of Brazil country risk.
Brazil Election Data Room
Runoff poll average: Flávio Bolsonaro 51.0%, Lula 49.0%
45 national polls from 21 pollsters since 4 October, updated hourly. Every poll, free to download.
What Brazil Country Risk Measures
Brazil country risk is read here from the five-year credit default swap, or CDS, a kind of insurance policy on Brazil’s government debt. Prices are compiled by S&P Global Market Intelligence, a financial data provider.
At 151.7 points, the CDS means protection costs about 1.5% of the insured amount each year, or roughly US$151,700 on US$10 million. On Friday it stood at 120.2 points, about 1.2%, so the insurance rose by about US$31,500 per US$10 million.
Quoted in points, 100 points equal one percentage point of the insured amount, paid each year by the buyer. Brazil country risk is not the EMBI spread, the gap between Brazilian dollar bonds and US Treasuries published by JPMorgan, a US bank.
Brazilian papers often call both measures country risk. This article uses the CDS only, because no EMBI figure for Monday could be confirmed.
Why Brazil Country Risk Moved So Fast
After the first round on 4 October, the CDS fell below 108 points on 6 October, the lowest level since 2020. Investors read that vote as a win for Flávio Bolsonaro, who promised a large budget adjustment built mostly on spending cuts.
As polls tightened, the CDS drifted back to about 120 points by Friday 23 October. Lula’s win on Sunday, with 51.79% of valid votes, meant the market priced in a government expected to keep spending.
That raises the odds of another credit rating downgrade, which is why Brazil country risk moved so fast. Lula’s team has not yet said how it would balance the budget.
A Shock Across Brazilian Markets
The CDS was one of several gauges that moved together on Monday. The Ibovespa, Brazil’s main stock index, opened about 17% lower and was halted, while the dollar rose 12% to 5.60 reais (about US$0.18 per real).
Those moves are covered in detail in our reports on the stock market halt and on the morning market call. The CDS adds a different message, because it prices the risk of lending to the government itself.
What Morgan Stanley Expects
Strategists at Morgan Stanley, the US investment bank, expect Brazil’s five-year CDS to widen by about 40 points in the first sessions after the election. They expect Brazilian dollar bond spreads to widen by about 50 points.
They say part of that move may reverse later. Fiscal doubts and higher interest rates should keep pressure on Brazilian assets in the short term.
In their base case the dollar first tests 5.50 reais, then 5.60 or 5.70 reais (about US$0.18 per real). It reaches 6.00 reais (about US$0.17 per real) only if investors start pricing fiscal dominance.
Fiscal dominance means fear that government debt needs override central bank policy. Brazil’s public debt is above 80% of gross domestic product, which rating agencies treat as the country’s main weakness.
What It Means for US Readers
Holders of Brazilian dollar bonds and of EWZ, the iShares MSCI Brazil exchange-traded fund, face higher perceived risk on top of a weaker real. EWZ fell as much as 30% in morning trading on Monday.
Analysts flagged state-linked companies such as Petrobras, the state-run oil group, as especially exposed. Brazilian companies that borrow in dollars may pay more to refinance, because they usually pay a premium above the government’s own cost.
The open question of US tariffs adds another layer of risk for exporters. Travellers gain purchasing power, since a dollar buys about 12% more reais than on Friday.
What Is Not Known
It is not yet known whether the jump in the CDS will hold, since it can reverse once investors see a credible fiscal plan. The names of Lula’s economic team and any new spending rules have not been announced.
Lula also has no majority of his own in Congress, and lawmakers resist tax increases as a way to balance the budget. How he squares that with markets is the open question for the weeks ahead.
More: Brazil news in English, every day from The Rio Times.
Frequently Asked Questions
What is Brazil country risk?
It is the extra cost investors see in lending to Brazil’s government. This article measures it with the five-year credit default swap (CDS), not the EMBI spread.
How high did Brazil country risk go?
The five-year CDS rose 26% on Monday 26 October to 151.7 points from 120.2 on Friday. That is its highest level since June 2025.
Does a higher CDS mean Brazil will default?
No, a higher CDS only means that insuring Brazilian debt got more expensive. Investors are pricing fiscal worries after Lula’s win, not an expected default.
How does Brazil country risk affect US investors?
A higher CDS can lower the price of Brazilian bonds and of US-listed Brazilian shares. It can also raise the cost for Brazilian companies that borrow in dollars.
Sources: Terra, Risco-país brasileiro salta 26% e atinge maior nível desde junho de 2025, 26 October 2026; SpaceMoney, CDS do Brasil dispara 26% com vitória de Lula, 26 October 2026; SpaceMoney, Morgan Stanley alerta para dólar e bolsa após reeleição de Lula, 26 October 2026; ADVFN Brasil, Risco-país do Brasil dispara 26% após a eleição, 26 October 2026; Money Times, Ibovespa derrete quase 17% após circuit breaker, 26 October 2026; InfoMoney, Como os mercados vão abrir após a reeleição de Lula, 25 October 2026.
Editorial responsibility: Matthias Camenzind, Editor-in-Chief · Editorial standards · Report an error
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