IV Macro Policy & Sovereign DebtAmericas
ORF credits Lula's comeback to a digital push and his rival's misstep
- Institution
- Observer Research Foundation (Expert Speak)
- Author
- Hari Seshasayee
- Country · language
- India · English
- Affiliation
- Independent think tank
Summary
Writing for ORF on 3 November, Hari Seshasayee notes that Lula is the first Brazilian candidate to trail in the first round and go on to win the run-off. In the first round on 4 October, Flávio Bolsonaro took 47.03% to Lula's 45.16%. In the run-off, Lula won 64.25 million votes against Bolsonaro's 59.82 million. According to the author, Lula's vote rose in all 26 states and the federal district, and Minas Gerais was the only state to switch sides.
Seshasayee attributes the turnaround to two factors. The first is a late-starting digital campaign: Lula's WhatsApp channel grew from 60,000 to 10 million followers in three weeks. The second is his rival's overconfidence: after the first round, Bolsonaro talked up constitutional amendments and the privatisation of state companies, driving away centrist voters. The author believes a more moderate right-wing candidate, such as Tarcísio de Freitas, could have won.
The piece reads the result as a break in the regional right-wing wave and a setback for Washington's strategy in the region. It locates the constraint in Congress: Bolsonaro's Liberal Party holds 121 seats in the Chamber of Deputies and 28 in the Senate. In Seshasayee's view, this arithmetic could delay Lula's reforms. He notes that India's Prime Minister congratulated Lula within hours.
Blind spot
The piece never discusses Brazil's real constraint, the cost of borrowing. After the result, the Treasury cancelled its auction calendar and 5-year CDS rose from 137.43 basis points on 26 October to 145.32 on 2 November. The impact of the digital campaign is assumed rather than measured, and beyond the congratulations there is no analysis of India–Brazil relations.
Talay assessment
Bottom line
ORF's reading explains the politics of the election but not its price. Brazil's 5-year CDS rose from 137.43 to 145.32 basis points between 26 October and 2 November, while Mexico's fell from 97.34 to 95.51 over the same period. The binding constraint is whether Lula can set a numerical fiscal anchor in the face of a 121-seat opposition. The most likely path is a delayed anchor and a premium that stays elevated.
Likely effects
- Brazilian borrowing costsNegativeWeeks
CDS climbing to 145.32 basis points after the election means the Treasury will pay higher yields when it returns to the auctions it cancelled.
- Regional divergenceUncertainWeeks
Mexican CDS easing to 95.51 in the same week shows the premium is being charged to Brazil's fiscal rule, not to the region.
- Reform timetableNegative1–6 months
The Liberal Party's 121 seats in the Chamber and 28 in the Senate make both the spending rule and tax legislation subject to bargaining.
Possibilities, ranked
- 1Anchor delayed, premium persists55%
The government leaves the budget to congressional bargaining without announcing a numerical rule, and CDS stays above 130 basis points.
Watch: Brazil 5-year CDS and the date the Treasury resumes its fixed-rate auction calendar
- 2A numerical rule arrives30%
The Finance Ministry commits to a numerical primary surplus target and the premium eases towards 120 basis points within weeks.
Watch: Finance Ministry announcement of the 2027 primary surplus target
- 3Clash with the central bank15%
Political pressure for rate cuts intensifies, and the currency and extended-maturity yields deteriorate together.
Watch: The January 2031 DI futures contract rising back above 15%
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Original publication: orfonline.org · 3 November 2026
This page summarises the institution's view and does not reflect the view of Talay Insight. No direct quotation is used.