What Happened to Central Government Accounts in August?
The National Treasury reported that the Central Government posted a primary deficit of R$ 13.585 billion in August. While negative, the result marked an improvement compared to the same period a year earlier, when the shortfall reached R$ 15.5 billion in August 2025, showing a modest recovery trajectory in the monthly figures.
The Treasury's data also topped financial market projections. The analyst consensus pointed to a monthly deficit of R$ 14.4 billion, while XP estimates projected a negative balance of R$ 14.1 billion. Despite the positive monthly surprise, the cumulative figures underscore that the fiscal challenge remains steep: from January through August, the primary deficit totaled R$ 94.9 billion.
Over the trailing 12 months, the negative result hit R$ 68.7 billion, equivalent to roughly 0.53% of Gross Domestic Product (GDP). The primary balance measures the difference between total government revenues collected and expenditures made, excluding public debt interest payments from the calculation. For this reason, analysts and investors closely watch the indicator to evaluate the trajectory of public accounts and the sustainability of state indebtedness.
Why Did August's Fiscal Result Come in Better Than Expected?
An increase in government revenue from oil exploration and natural resources helped keep August's fiscal result above market projections. Central Government net revenues posted a real year-over-year increase of 3.5%, totaling R$ 187.8 billion for the month.
According to an analysis by XP economist Tiago Sbardelotto, one of the main drivers behind this revenue jump was the natural resource exploration category, led by oil royalties. The performance of this revenue stream provided temporary relief to federal coffers, offsetting part of the pressure from mandatory spending.
Key Concept: The primary balance reflects the difference between government revenues and expenditures before paying public debt interest. When a deficit occurs, the government must issue more bonds or raise revenues to cover the budget shortfall.
However, analysts emphasize that monthly relief from commodities and non-recurring revenues does not eliminate the need for caution. Although August came in below the R$ 14.4 billion expected by consensus, the 12-month accumulated volume of R$ 68.7 billion shows that public spending continues to grow at a brisk pace, demanding high levels of continuous revenue collection to prevent further deterioration in fiscal indicators.
How Did the Fixed-Income Market React to the Data and the External Environment?
Yields on Tesouro Direto government bonds fell across longer maturities, with the Tesouro IPCA+ 2050 dropping from 7.13% to 7.03% per year. The move reflected a combination of domestic fiscal data and developments in the international arena, during a day marked by reports of negotiations between the United States and Iran regarding the Strait of Hormuz.
| Tesouro Direto Bond | Prior Yield | Current Yield | Change |
|---|---|---|---|
| Tesouro IPCA+ 2050 | 7.13% | 7.03% | -10 bps |
| Tesouro IPCA+ w/ Semiannual Coupons 2060 | 7.18% | 7.07% | -11 bps |
| Tesouro IPCA+ w/ Semiannual Coupons 2045 | 7.31% | 7.21% | -11 bps |
| Tesouro Prefixado w/ Semiannual Coupons 2037 | 14.10% | 14.02% | -8 bps |
| Tesouro Prefixado 2032 | 14.15% | 14.08% | -7 bps |
| Tesouro Prefixado 2029 | 13.90% | 13.87% | -3 bps |
The yield declines were concentrated in the long end of the Tesouro Direto yield curve. The Tesouro IPCA+ with Semiannual Coupons 2060 fell from 7.18% to 7.07% per year, while the Tesouro IPCA+ with Semiannual Coupons 2045 dropped from 7.31% to 7.21% per year. Among fixed-rate bonds, the Prefixado with Semiannual Coupons 2037 fell from 14.10% to 14.02%, the Prefixado 2032 dropped from 14.15% to 14.08%, and the Prefixado 2029 moved from 13.90% to 13.87%.
Alongside fiscal policy and oil prices, the financial market monitored employment data from the National Household Sample Survey (PNAD), which showed an unemployment rate of 5.3%, close to historical lows. Commenting on the indicator, Rai Chicoli, chief strategist at Monte Bravo, noted that the data aligns with the Central Bank's view of a gradually decelerating economy alongside a still very tight labor market. In the foreign exchange market, the commercial U.S. dollar closed at R$ 5.20, up 0.30% for the day.
What Does the Public Accounts Result Mean for Retail Investors?
The primary balance alters market perceptions regarding risk premiums demanded on government bonds and the country's borrowing costs. When the Central Government posts systematic deficits, projections for the debt-to-GDP ratio tend to rise, which typically requires higher interest rates to attract buyers for public debt.
For fixed-income investors, a smaller-than-expected deficit can offer temporary relief in long-term interest rates, lifting government bond prices via mark-to-market accounting. On the other hand, the accumulated shortfall of R$ 94.9 billion in the first eight months demonstrates that the fiscal trajectory still warrants attention. IPCA-linked bonds and long-term fixed-rate papers tend to exhibit higher volatility when the market adjusts expectations regarding spending control.
In the equity market, higher interest rates driven by fiscal risk increase the discount rate applied to the cash flows of exchange-listed companies and real estate funds. This means persistent federal budget imbalances raise corporate borrowing costs and diminish the appetite for higher-risk assets.
What to Watch in Upcoming National Treasury Reports?
Investors should monitor the sustainability of tax revenues in the months ahead and how mandatory spending figures into the budget mix. Key points to track in upcoming Treasury statements include:
- Commodity Revenue Trends: Check whether oil royalty contributions will continue offsetting fluctuations in traditional tax collections.
- Year-to-Date Deficit: Track whether the trajectory of the accumulated balance, which reached R$ 94.9 billion through August, shows signs of slowing down in the final months of the year.
- GDP Ratio: Observe whether the 12-month accumulated deficit remains contained near the current level of 0.53% of GDP.
- Tesouro Direto Yield Curve: Evaluate the impact of fiscal releases on the yields of papers such as the Tesouro IPCA+ 2045, 2050, and 2060, which typically react with greater volatility to fiscal risk revisions.
Rico aos Poucos Take: August's R$ 13.585 billion deficit came in better than market expectations, offering temporary relief to the Tesouro Direto yield curve. However, with the year-to-date shortfall sitting at R$ 94.9 billion, retail investors should maintain a diversified portfolio, taking advantage of attractive fixed-income yields without neglecting long-term inflation protection.
