The US and Israel attack on Iran has created global uncertainty, and an increase in capital market risk. In times past, emerging market bonds would have sold off, with yields gapping up, and emerging market currencies cratering versus the US dollar. While bonds and currencies have gone down in emerging markets, the reaction in Brazil, historically a poster child for expression of risk and uncertainty, the moves have been muted.
It seems Brazil is changing for the better.
A muted response to uncertainty is surprising. For a long-time the global investment community has been skeptical regarding Brazil's economic and financial prospects. Skepticism towards Brazil stems from the old yarn "Brazil, the country of the future, always has been and always will be". It's true, there have been a lot of false economic starts in Brazil over the past ten plus years, and corruption and political scandals seem to happen quite often.
But right now, Brazil is proving itself to be something else. Since the Iran war broke out on February 28, 2026, the Brazilian real has appreciated 2.5% versus the US dollar. At the same time, yields on Brazilian government bonds did not blow-out to the upside; the Brazilian ten year went from 13.45% to 13.76% only .31% (31 basis points), not much at all.
.31% upward in the bond is not a reason for investors to buy currency exposure and drive the value of the real up. There must be more to the explanation of why investors bought, not sold, in Brazil.
It could be that a sanguine view towards risk in Brazil stems from US stock markets holding on to their mojo. In the best of times, US stocks pose risk. In times of such high valuations by a narrow few (AI related), risk is magnified.
But to claim Brazil is just a risky asset drafting off another risky market, the US, does not do Brazil the justice it deserves. Brazil has hung in there because Brazil is improving.
As example, inflation has a long history of volatility. In the last ten years Brazilian investors and local consumers have seen inflation at 12% (2022). In March 2026, inflation was 4.41%. More surprising is the early April number, which came in at .89% from previous month, below expectations. Positive data point on inflation could lead the central bank to cut interest rates this week.
Lower interest rates, high international yields, and a stable currency make for a good investment.
The weak point in all this is Brazil's government debt at 77% of GDP. In 2020 it was over 80%. This is still high, but Brazil gets good marks for the direction of change.
Sometimes in investing "direction of change" is more a driving force than absolute numbers.
The best way for on chain investors to benefit from Brazil's improvement is to buy Etherfuse Brazilian Tesouros, short-term government debt yielding 12.85% in real. If the Brazilian real does not weaken in value against the US dollar, this represents a yield to maturity pick-up of over 8%.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
