A medium-term Brazilian sovereign bond denominated in US dollars pays a 12.25% annual coupon and yields about 5.7% to maturity, after a week of post-election selling hit Brazilian equities, bonds and the real alike.
In Brazil, incumbent president Lula won re-election to a 4th term with 51.79% of the vote, in a late-October round of ballots that also included legislative elections in Israel and parliamentary elections in Serbia. The political and social stakes were high in each case, and each electorate made its choice democratically.
A re-election is ordinary business in a sovereign state. Financial markets did not treat it that way: in the days before the vote they had “positioned” themselves around the economic agenda of the challenger who had won the first round.
Why the Bovespa fell while yields climbed back up
Every pre-vote forecast was overturned, and on Monday, October 26 traders had to “unwind” the positions they had opened in the preceding days. The challenger’s first-round win had pointed to an acceleration toward free markets and privatizations. Lula’s program calls for more public spending instead, both for investment and for social purposes.
The biggest losers, in declines and market contraction, were Brazil’s large state-controlled companies, its sovereign bonds and the real. Against the euro, the EUR/BRL cross has moved from roughly 5.5 last week to 6 today.
In fixed income, traders expect higher public spending, a weaker fiscal stance and therefore greater sovereign risk. Prices of USD-denominated bonds have fallen and yields have risen, evidence of the larger premium the market now demands to hold Brazilian government debt. The currency delivered a further blow by depreciating against the dollar as well, which prompted the large funds to lighten positions and move capital elsewhere.
The “Brasile Tf 12,25% 06Mz30” bond in US dollars
Among the bonds in circulation is the “Brasile Tf 12,25% 06Mz30”, ISIN US105756AL40. It is denominated in US dollars and quoted (clean price) on EuroTLX, a bond-trading venue of the Italian Stock Exchange. It matures on March 6, 2030, in just over 40 months.
The minimum denomination is USD 1,000. Daily trading over the past month has amounted to a mere handful of units, which makes the bond illiquid.
The coupon starts at an annual 12.25% (6.125% gross, paid semiannually) and falls to 10.72% after the 12.50% Italian withholding tax on interest. In practice, USD 1,000 in nominal value produces USD 107 net per year.
At current prices of around 119.2 (the average price over the past month has been 120-121), however, the yield to maturity is “only” about 5.7% gross. The total gross gain works out to roughly 18% over just 3 years and 4 months, and with a well-timed entry price the “risk” of reaching 20% is just around the corner. The calculation accounts for the accumulation of future coupons and the capital loss at maturity, and assumes the exchange rate is unchanged between entry and the end.
By way of comparison, the BTP Valore Mz 2030, a retail BTP (Italian government bond), trades at par (100.05) and yields 3.96% to maturity.
The currency unknown between now and March 2030
As with every product denominated in a foreign currency, the big unknown is the exchange rate ahead and at maturity. Buying the Brasile Tf 12,25% 06Mz30 is a kind of three-sided transaction: the saver is domestic and thinks in euros, the debtor is the Brazilian state, and the currency of exchange is the US dollar.
At the start of 2026 many experts warned of a weakening dollar against the euro. The opposite scenario played out. Today the EUR/USD cross stands at 1.1196, against roughly 1.17, 1.15, 1.17 and 1.15 at the beginning of January, March, May and September respectively. The cross started strong in the first months and deflated over time.
The greenback’s strength rests mainly on three elements: the strength of the US economy, the interest-rate differential, and geopolitical tensions that make the dollar a potential safe haven.
According to the Agenzia di Previsioni Economiche, an economic forecasting source, the EUR/USD cross in March 2030 is expected between 1.107 and 1.147. Given the distance between now and then, the estimate deserves a very large grain of salt.
This medium-term Brazilian sovereign bond pays 12.25% a year and yields 5.7%
Beyond the momentary pullback in valuations, the Brasile Tf 12,25% 06Mz30 USD has (at least) three pros and three cons. Chief among the first is the enormous coupon flow, unthinkable among the securities issued by Italy’s Treasury. Next come the strength of the currency the bond is denominated in, the US dollar, relative to the real, the issuer’s domestic currency, and its medium maturity and modest duration (2.7 years).
The strength of a currency is one thing, though, and the exchange rate at maturity, or before it, is quite another. Anyone investing here starts out holding euros, and at the end of the investment the proceeds have to be converted back into euros.
The cons start with country risk, the trigger for the broad selling of recent days. Widening spreads and the large funds’ corresponding retreat from Brazilian assets are evidence of exactly that intensifying threat.
The second is the bond’s high market price, which will inevitably lead to a substantial capital loss at maturity. The third is the bond’s liquidity on the secondary market, which is almost nonexistent. For anyone trading fixed-income products denominated in a foreign currency, that is anything but a secondary consideration. Quite the opposite.
Editor’s note
This article was originally published in Italian on money.it by Stefano Vozza on November 02, 2026 as «Paga il 12,25% annuo e rende il 5,7%, il bond del Brasile in dollari dopo la vittoria di Lula». It has been translated and adapted for an international audience by the Money.it International desk.
