Gabriel Galípolo stated what the yield curve was already showing: the central bank sets the Selic rate, but the long-term rates reaching 15% on long-duration contracts are determined by the market—and lowering them requires fiscal credibility, not another adjustment to the benchmark rate.
Does the Central Bank Control the Yield Curve?
No. Central Bank President Gabriel Galípolo was direct at Barclays Day this Friday (11/13): the monetary authority controls the overnight rate, but the entire structure of the yield curve is formed in the market based on risk perceptions over the future horizon. When the central bank sets the Selic rate at a level considered incompatible with its mandate, Galípolo explained, risk perceptions spill over into other maturities, leading investors to demand higher premia.
"The only way to compress the risk premium is by compressing risks, which is directly tied to credibility."Gabriel Galípolo, Central Bank President, at Barclays Day on 11/13/2026
The statement distinguishes between two instruments that are frequently confused. The Selic rate—which Copom maintained at 13.75% at its November 4 meeting after lowering it from 15% over the course of the year—applies to only a single term: the overnight rate. What happens to the DI futures contracts for 2029, 2031, or long-term fixed-rate and inflation-linked bonds depends less on decisions made every 45 days and more on market confidence in the country's fiscal trajectory. Galípolo cannot decree that level of confidence; he can only sustain it by fulfilling the central bank's mandate.
The 1.38-Point Spread the Selic Rate Does Not Explain
On Friday morning, DI future contracts revealed the size of the premium the market is charging as the time horizon extends:
Benchmark rate maintained by Copom on 11/4
+0.60 pp above the Selic
+1.07 pp above the Selic
+1.38 pp above the Selic
This steepening is not a projection for higher Selic rates: it is what the market charges extra to finance Brazil over longer horizons. The January 2028 DI already embeds 60 basis points above the benchmark rate; by January 2031, the premium reaches 138 basis points. The longer the maturity, the greater the uncertainty regarding the fiscal trajectory—and therefore, the higher the premium.
The contrast with the beginning of the year is notable. The yield curve steepened significantly right after election week, when, as we showed in our analysis of the surge in DI rates during the first post-election trading sessions, long-term maturities jumped more than 2.5 points in a few days. Today's levels represent a partial adjustment, but the fiscal premium has not yet closed.
Credibility as a Rate Variable
The practical implication of Galípolo's statement is precise: the central bank could cut the Selic tomorrow, and long-term rates might not drop. The chart already demonstrates this. The Selic moved from 15% to 13.75% over the year, yet the January 2031 DI is currently in the same 15% range. The premium persists because doubts about the trajectory of public debt have not dissipated. Spread compression only occurs when the market genuinely believes that fiscal adjustment is sufficient and durable.
Longer-maturity Treasury IPCA+ bonds yielded around IPCA+ 7% per year in November 2026—historically high levels, close to the peak of IPCA+ 8% reached during periods of greater stress. According to Sigma Trust Research, the steepness of the Brazilian yield curve is predominantly fiscal in character rather than inflationary: real yields of ~7% on long-term NTN-Bs price in uncertainty over debt sustainability, which is on a path pointing toward 88.6% of GDP by 2032. With gross debt already at 82.93% of GDP in September, the market is not charging an inflationary risk premium; it is charging a refinancing premium.
The Fiscal Adjustment Approved in the Senate Did Not Close the Curve
On Wednesday (11/12), the Senate approved the baseline text of the fiscal adjustment bill (PLP 299/2026) by a vote of 45 to 31. Senator Eduardo Braga's substitute bill projects an impact of between R$ 45.1 billion and R$ 56.1 billion on the 2027 primary balance, incorporating spending containment measures and tax break reductions. For anyone expecting that the approval of the baseline text in the Senate would narrow the curve's spread, Friday morning brought the opposite signal: the January 2031 DI moved from 15.088% to 15.125%—an increase, not a decline.
The market did not ignore the progress, but it did not celebrate it either. The bill reached the floor with 74 amendments, of which the rapporteur accepted 21 in whole or in part; the definitive version awaits votes on split-out amendments (destaques), which will decide whether the fiscal impact reaches the R$ 56 billion ceiling or stops at R$ 45 billion. Meanwhile, Congress also approved this week the approval of R$ 149.4 billion in supplemental credit—adding pressure to the expenditure side precisely as the Senate attempted to rein in the revenue side. For the market, fiscal credibility is not declared; it is calculated.
Galípolo also declined to provide any forward guidance on the next steps for the Selic rate, citing elevated uncertainty in both the domestic and international environments. He went further in his diagnosis, comparing the interest rate debate in Brazil to a "sports-fan rivalry," where each side defends a predetermined position regardless of the data. The statement carries significant weight—the central bank will not react to political pressure. "The central bank is not a financial consultant," Galípolo added, reaffirming that the institution's mandate is price stability, not guaranteeing returns for any segment of society.
What This Means for Fixed-Income Investors
If you hold long-term NTN-Bs, long-duration fixed-income funds, or extended-term fixed-rate contracts, the embedded premium—IPCA+ 7% to 8% or DIs above 15% on long bonds—reflects the cost the market is charging for fiscal uncertainty. As long as this premium exists, the contracted yield is high: investors who lock in these rates now secure them until maturity, regardless of what happens to the curve. The risk falls on those who need to sell early: if fiscal credibility improves, rates fall and bond prices rise, generating capital gains; if it worsens, the reverse occurs. Galípolo's message is that the central bank will not resolve this dilemma with the Selic—fiscal adjustment is what resolves it.
Key Indicators to Monitor
Curve steepness (spread between Jan/2028 DI and Jan/2031 DI) — currently at ~78 basis points between these two maturities. Convergence below 50 points would signal that the market has begun pricing in a reduction of fiscal risk over longer horizons.
Long-term NTN-B (Treasury IPCA+) — currently around IPCA+ 7% p.a. If it drops below IPCA+ 6%, the entry window for historically high rates will begin to close. For investors who have not yet allocated capital and can tolerate duration, current levels represent one of the best opportunities in recent years—with the risk of negative mark-to-market returns in the short term if the fiscal adjustment disappoints.
Vote on the split-out amendments (destaques) for PLP 299/2026 — the final version of the fiscal adjustment will determine whether the 2027 impact reaches the R$ 56 billion ceiling or stays at R$ 45 billion. The R$ 11 billion difference matters less for its absolute value and more for the signal it sends to the market regarding Congress's willingness to control spending.
