Bolsonaro victory largely priced into Brazilian assets

We expect limited immediate market reaction if Flavio Bolsonaro wins Sunday’s run-off election. Over the medium term, though, the bond rally may continue if the Selic rate is cut by more than money markets currently discount and Bolsonaro delivers fiscal tightening. By contrast, a Lula victory may trigger a sharp sell-off in Brazilian assets, more than reversing the rally following Bolsonaro’s strong first-round showing.