Credit Market: Opportunities in Brazil and strong economy in the U.S.

The third quarter was marked by significant transformations in both the Brazilian and international credit markets.

In Brazil, Provisional Measure 1,303/2025 triggered a race for tax-exempt assets, intensifying demand and compressing spreads to historic lows.

Meanwhile, the international market presents a constructive outlook, with strong financial positions among U.S. consumers and companies, significantly reducing recession risks.

• Impact of Provisional Measure 1,303/2025: The measure proposes a 5% tax on income from incentivized securities starting in 2026, while preserving tax exemption for securities and funds issued by December 2025. This has sparked a true race among institutional and professional investors to take advantage of this window of opportunity, drastically increasing demand for assets such as infrastructure debentures, CRIs, and CRAs.
• Secondary market dynamics: The surge in demand from funds has led to spread compression to historic lows. This sharp tightening is being partially offset by a higher volume of new issuances, creating an interesting dynamic where supply attempts to balance the high demand. The secondary market is experiencing unprecedented liquidity in this segment.
• Accelerated issuer strategy: Even in a challenging high-interest-rate environment, issuers are rushing to launch new offerings before the December 31, 2025 deadline. They are taking advantage of the current low spreads to better manage their liabilities and extend their debt maturities, recognizing that this regulatory window may not happen again.
• Macroeconomic factors and risks: The impact of U.S. tariffs has been limited among major Brazilian issuers and has not overridden existing market dynamics. There is an expectation that the Selic rate hike cycle is nearing its end, but prolonged high rates could affect corporate credit by extending the deleveraging period.
• Strategic recommendations: Given the expected volatility in this private credit market, the recommendation is to remain cautious and diversify investments across both companies and sectors. The regulatory window offers opportunities but should be approached with prudent risk management.

• Constructive macroeconomic outlook: Strong financial positions among U.S. consumers and companies, combined with falling oil prices, have significantly reduced private sector vulnerability and recession risk. Early signs of recovery are already visible in the manufacturing and housing sectors after years of weak performance, which may benefit cyclical sectors such as transportation, consumer discretionary, and materials.
• Fixed income positioning strategy: The current strategy involves an underweight position in U.S. Treasuries, particularly in the 1–3-year segment, considering the Fed’s implied rate cut cycle as aggressive. On the other hand, there is an overweight position in High Yield, especially BB-rated bonds, which offer attractive yields relative to Investment Grade with limited downside risk.
• Robust earnings season: Q2 2025 earnings grew 11.8% year-over-year, marking the third consecutive quarter of double-digit growth. Earnings beat estimates by 8.4%, above the 10-year average, with net margins rising to 12.8%.
• Sector outlook and tariff impact: Although trade uncertainty is at record levels, the impact on companies has been limited so far. The automotive industry has been the most affected, while other companies reported pressures only in Q3. For emerging market companies, the impact of tariffs and sanctions has been minor, with improving contributions from local markets.
• Monetary policy and investment strategy: Following recent repricing, the market now expects five rate cuts by the end of 2026, with the first possibly in September 2025. The strategy focuses on BBB and BB-rated bonds targeting yields of 5% to 7%, with a preference for maturities between 2030 and 2035 due to the credit curve steepness. The recommendation is to take advantage of still-elevated, above-inflation yields while they are available.
• Future risks and opportunities: While trade uncertainty may slow activity in 2025, growth is likely to accelerate again in 2026 with expected fiscal stimulus. Corporate balance sheets remain strong, with credit spreads returning to pre-Liberation Day levels. The main risk would be a recession, which is currently considered a low-probability scenario.