Brazil’s presidential election, scheduled for October 4, 2026, has intensified debate over how to reduce the country’s elevated long-term borrowing costs. Real interest rates on government bonds maturing in 2045 stand near 7.5%, while gross public debt has climbed to 81.9% of GDP since President Luiz Inacio Lula da Silva took office in 2023, an increase of more than 10 percentage points.
Jose Sergio Gabrielli, chief coordinator for Lula’s re-election platform, has advocated for the Treasury to conduct bond buybacks, drawing parallels with recent operations by the U.S. Treasury. The proposal aims to curb long-term yields by reducing the supply of outstanding debt. Gabrielli dismissed criticism from Folha de S.Paulo, which warned of urgent fiscal adjustments, arguing the editorial portrayed Brazil as being "on the brink of chaos."
The rival camp, led by Lula’s main opponent Flavio Bolsonaro, has countered with a focus on fiscal discipline. Adolfo Sachsida, a former Mines and Energy Minister who joined Bolsonaro’s economic team, argued that spending cuts—not market intervention—are the only sustainable solution to lower interest rates. In a post on X, Sachsida described Gabrielli’s buyback proposal as an artificial and "mediocre" attempt to suppress borrowing costs, warning that such measures risk injecting liquidity into the economy, stoking inflation, and ultimately pushing rates higher.
Brazil’s Treasury has historically employed a staged approach to managing volatility in the secondary bond market, prioritizing reductions in auction supply, shrinking offer sizes, and canceling auctions before resorting to buybacks or liquidity operations. The last large-scale bond buyback occurred in March following geopolitical tensions tied to the U.S.-Israeli conflict with Iran, though such measures remain rare for the debt manager.
