MediumIV Macro Policy & Sovereign Debt26 October 2026, Monday

Brasília answers the currency panic with Treasury buybacks, not the central bank

Finance Minister Dario Durigan said on 26 October that the Treasury would enter the market with bond buybacks and aim for the midpoint of its primary surplus target. The Treasury cancelled its 27–29 October auctions, while the central bank stayed out of the currency market even as the dollar rose by close to 12%.

Location: BRASÍLIA

A Brasil 247 report dated 26 October at 12:23 Brasília time said Durigan would supply liquidity to the market by buying government bonds. The minister said he was coordinating with Lula and central bank governor Gabriel Galípolo, and stressed that the aim was rationality rather than price control. In the same remarks he listed 3 fiscal commitments: hitting the midpoint of the primary surplus target, reviewing mandatory spending and not extending certain off-budget incentives. The size of the buyback was not disclosed and that figure could not be verified.

The dollar opened that morning 8.65% higher at 5.42 reais and was up 12.2% at 5.60 reais before 10:00; Brasil 247 notes that this exceeded the 11.10% intraday move of 15 January 1999. Durigan said the central bank was also weighing intervention to prevent disproportionate pressure on the currency. Boca reports that the bank went to neither spot sales nor a swap auction, because market participants saw no dollar shortage and no liquidity problem. The dollar closed the day 8.21% higher at 5.4029 reais.

A Coinpaper report citing Reuters says the Treasury cancelled its fixed-rate and inflation-linked bond auctions as interest rate futures spiked; the price of the 2056 bond fell by about 2.5 cents. MercoPress quotes Viktor Szabó of Aberdeen calling for a new fiscal framework that generates a primary surplus able to stabilise the debt, and recalling that public debt has passed 80% of GDP. The central bank cut the policy rate for a 5th time on 16 September, to 13.75%, and the next decision had been pushed to November, after the election.

Talay assessment

Bottom line

On day one Brasília defended the curve, not the currency. The central bank spent no reserves, while the Treasury tried to give the far end some air through bond buybacks and 3 cancelled auctions. That choice helped the real recover from 5.60 to 5.40 at the close, but Durigan's 3 commitments cannot stand as a lasting anchor while they carry no figures. What the market is waiting for is not a buyback; it is a spending cap rewritten with numbers.

Likely effects

Brazilian bond supplyNegativeWeeks
Cancelling the auctions lifts supply pressure in the near term, but the deferred borrowing need is met at higher yields once auctions reopen.
Exchange rate policyUncertainWeeks
The central bank standing aside through a move above 8% preserves reserves and shows the currency adjustment is being left to price.
TürkiyeUncertain1–6 months
Defending the curve through Treasury buybacks gives Turkish policymakers a case to watch, where a crisis in an emerging market is met with debt management instead of reserves.

Possibilities, ranked

1
Fiscal package with figures50%
The government puts numbers on the mandatory spending review and the surplus target, and Treasury auctions restart in November.
Watch: Durigan's spending cut figure and the Treasury's new auction calendar
2
The central bank steps in30%
The real weakens back towards 5.60 and the bank starts spot sales or a swap auction.
Watch: An announcement of a central bank currency swap auction
3
The verbal anchor holds20%
The buyback and the commitments halt the unwinding of positions and the currency settles without further steps.
Watch: A sustained dollar/real close below 5.40

Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.

Market reaction

Indicators affected

Dollar/real intraday peak▲ +12.2%
Days of auctions cancelled▼ 3

Bottom line

Likely effects

Possibilities, ranked

Sources