The second-round of Brazil’s presidential election race on Sunday is looking much closer than had seemed likely a few weeks ago. Lula still appears to be the favourite. But the rising likelihood of a Bolsonaro victory (the more market-friendly outcome) already appears to have narrowed Brazil’s sovereign dollar bond spreads by c.30bp relative to its peers. And if he does indeed win, this ‘Bolsonaro premium’ would probably increase sharply in the immediate aftermath of the result.
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