The yield on Brazil’s 10 year government bond fell past 13.5% to one year lows as softer inflation and lower inflation expectations strengthened the case for declining long term rates. Headline inflation eased to about 4.6% in October which reduced the risk that the Central Bank will need to keep the Selic at historic high levels. With inflation cooling and growth losing momentum investors increasingly expect the Central Bank to begin easing monetary policy in the near future. Lower perceived risk added further support since recent fiscal and economic revisions presented a more moderate profile that eased concerns about default risk and debt sustainability, easing the risk premium. At the same time, yields on safe assets have fallen in the US which lowers the benchmark risk free rate and allows emerging market yields to compress and reinforce demand for high yielding Brazilian bonds which remain attractive given Brazil’s still elevated real interest rates.