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Brazil Selloff by the Numbers: Dollar Investors Lost 20% in a Day

Brazil's Ibovespa fell 13.9% Oct. 26 and the real lost 7.6% of its dollar value, a 20.4% hit in dollars. Long DI rates jumped about 1.9 points early Monday.

By Global Terminal Staff · · 3 min read

A Brazilian flag waving in front of a building
Photo: Henry Rodrigues / Unsplash

Why it matters

  • Brazil's Ibovespa closed down 13.88% at 176,608.23 on Monday, Oct. 26, and the dollar rose 8.21% to 5.403 reais, InfoMoney reported. In dollar terms the index lost about 20.4%, close to the EWZ fund's 19.8% drop.
  • Rates moved more at the long end. The January 2031 DI contract rose to 14.46% early Monday from 12.58% on Friday, Rio Times reported, while the January 2027 contract rose to 14.01% from 13.48%. The curve flipped from inverted to upward-sloping.
  • Credit risk rose too. Brazil's CDS, a gauge of country risk, rose 26% to 151.6 points at 5 p.m. Brasília, InfoMoney said, and the Treasury canceled this week's fixed-rate and inflation-linked bond auctions.

Analysis: this piece includes our interpretation of the facts reported.

A dollar-based investor in Brazilian stocks lost about 20% on Monday, Oct. 26, the day after President Luiz Inácio Lula da Silva won reelection. The Ibovespa fell 13.88% to 176,608.23, and the real lost about 7.6% of its dollar value, based on InfoMoney's closing figures. Interest-rate futures and credit default swaps rose at the same time, so stocks, the currency and bonds all fell together.

How much did Brazilian assets fall on Oct. 26?

Every major asset class moved against holders. The table compares Friday, Oct. 23 with Monday, Oct. 26.

MeasureFri., Oct. 23Mon., Oct. 26Change
Ibovespa (reais)205,082.56176,608.23-13.88%
Dollar in reaisR$4.993R$5.403+8.21%
Ibovespa in dollars (calculated)about 41,074about 32,687-20.4%
iShares MSCI Brazil ETF (EWZ)$42.59$34.15-19.8%
DI January 202713.48%14.01% (early)+0.53 pts
DI January 203112.58%14.46% (early)+1.88 pts
Brazil CDSn/a151.6 points (5 p.m. Brasília)+26%

Sources: InfoMoney (Ibovespa, dollar, CDS); Rio Times (DI rates early in Monday's session); Yahoo Finance (EWZ). Dollar terms are Global Terminal calculations: the index divided by the dollar's closing rate in reais.

The dollar fell to R$4.993 on Friday, InfoMoney said, and closed Monday at R$5.403. It touched R$5.60 by 8:30 a.m. ET, Rio Times reported. The real's opening drop was its steepest since 1999, MercoPress reported, citing El País.

Was the currency or the stock market the bigger loss?

Stocks. About two-thirds of the dollar loss came from the Ibovespa's fall in reais, and about one-third from the weaker real, based on the closing figures above. The EWZ fund, which holds Brazilian stocks priced in dollars, fell 19.8%, almost exactly the index's 20.4% loss in dollar terms. That suggests New York trading tracked São Paulo by the close.

The panic eased during the day. EWZ opened at $31.71 and hit a low of $31.40, Yahoo Finance data show, before closing at $34.15. The Ibovespa's low was 169,516.43, InfoMoney said. B3 halted share trading for 30 minutes at 9:57 a.m. Brasília, or 8:57 a.m. ET, after the index fell more than 10% in the opening auction, Rio Times reported.

The damage was uneven. Bradesco's U.S. shares fell 28.0% and Itaú's 20.4%, while miner Vale, which earns in dollars, fell 3.2%, Yahoo Finance data show.

What does the DI curve say about the fiscal risk premium?

The long end rose far more than the short end. On Friday the January 2027 DI rate was 0.90 points above the January 2031 rate, an inverted curve. Early Monday the 2031 rate was 0.45 points above the 2027 rate, Rio Times figures show. InfoMoney's 9:33 a.m. Brasília figures were similar: the 2031 contract at 14.460%, up 1.885 points, and the 2033 contract at 14.575%, up 1.925 points.

A steeper curve means investors want more pay to hold Brazilian debt for longer. Reuters reported that public debt already exceeds 82% of GDP, and that without confidence Lula can deliver on the budget, lenders could demand higher interest rates. InfoMoney said in a 1:29 p.m. headline that the market was pricing a rise in the Selic rate in November.

The Treasury canceled its fixed-rate and inflation-linked bond auctions planned for Tuesday, Oct. 27, and Thursday, Oct. 29, InfoMoney reported. It kept Tuesday's Selic-linked auction and bought back about R$7.1 billion of NTN-F bonds.

Budget worries also lifted France's borrowing costs this month, as we noted in our look at the French bond spread over Germany. For the dollar side, see what drives the dollar index this week, and follow live levels on the world markets page.

Sources