NTN-B 2035: Brazil's Iran-Driven Inflation Dilemma

As of May 2026, Brazil's inflation-indexed government bonds, Notas do Tesouro Nacional – Série B (NTN-B), are offering some of the highest real yields in global fixed-income markets.

NTN-B bonds are government-issued bonds that pay coupons either every 6 months or have an NTN-B principal, which pays all interest and the inflation-adjusted principal at maturity. The bond is set up as IPCA + a fixed annual coupon, with IPCA being the country's official price index and the fixed annual coupon of 6%. As of the 30th of April, 2026, intermediate and long-term NTN-B bonds yield the IPCA plus an annual coupon of seven to eight percent. Currently, the 2035 NTN-B is yielding a return of IPCA +7.58%.

On April 29, Brazil's Central Bank (BCB) cut the Selic rate, the country's benchmark interest rate, by 25 basis points to 14.50%. This move was expected by most economists following a 25bps cut in March. This reflects the cautious attitude adopted by the central bank's President Gabriel Galipolo, who has framed the Iranian oil shock as a supply-side issue that has simultaneously driven prices up and weighed on growth. The BCB expects that once the conflict resolves, inflation rates will return to the target range, which explains the small nature of the bps cuts. Despite the easing cycle, the economy has remained relatively resilient as price pressures continue to rise due to the Iran conflict’s effect on global energy prices. The conflict has also weighed on Brazil's forecasted GDP growth, which currently sits at 1.7%, down from 2.3% in 2025. It is precisely the combination of rising inflation and the BCB's prudent cuts that keep real yields elevated and underpin an investment case for the 10-year maturity NTN-B 2035 bond.

Despite BCB's two consecutive cuts, the real yield on NTN-B remains elevated, following the IPCA trajectory. The IPCA has risen from 3.81% in February to 4.14% in March, with the market expecting 2026 to close at 4.86%, well above the 4.5% ceiling and significantly above the 3% target. Rising IPCA mirrors rising inflation expectations, prompting investors to demand higher compensation amid higher risk. In turn, bond prices in the secondary market fall, thereby yielding a more attractive return. Broad-based price pressures across the Brazilian macroeconomic environment, compounded by an uncertain geopolitical outlook, have kept real yields elevated even as the easing cycle progresses.

These factors culminate in the current attractiveness of the NTN-B 2035, which, at IPCA + 7.58% in real terms, ranks among the higher-yielding government bonds. As of May 6th, 2026, the bond's base price has increased to R$2450.44 ($497.70), up by around R$5 ($1.02) over the previous few days. While bond prices are marginally higher in early May, the broader trend since April remains one of declining prices and rising yields, reflecting persistent price uncertainty.

This assessment is supported by UBS's February 2026 strategic asset allocation report, which explicitly rates NTN-Bs as attractive across all risk profiles. Given the current macroeconomic scenario, the report recommends inflation-linked bonds such as NTN-Bs over CDI-linked instruments, which offer a nearly risk-free, interest-rate-linked asset closely tied to the Selic rate. CDI works better in the short term and, at the moment, offers returns well above the Selic with very low risk. However, if the BCB continues with its cuts, we expect the Selic to decrease. As such, removing such interest in the long term strengthens the attractiveness of long-term inflation-linked investments like the NTN-B 2035.

If the BCB's bet on the Iran War and its resolution are correct, it will not only lower the returns of the CDI, but newly issued government bonds will likely offer progressively lower yields to match the lower rates. This makes the existing 7.58% bonds increasingly attractive, which will push prices up and create a compelling market entry point for potential investors and holders of the bond.

However, for foreign investors, there is a significant risk in trading Brazilian securities and bonds such as the NTN-B 2035. The Brazilian real currently trades at approximately R$4.91 per US dollar, which is its highest level since 2024. Although the currency has appreciated recently, it may not be entirely due to a strengthening Brazilian economy, but also a depreciating American one. The Brazilian real is likely to depreciate amid external volatility, geopolitical tensions, a potential decline in the Selic rate, and the upcoming Brazilian election. This risk is therefore clear: although the NTN-B 2035 delivers strong returns in reais, current trends suggest the real will likely depreciate, impacting returns when converted back into dollars or euros and potentially offsetting the yield advantage.

The NTN-B 2035 offers a rare opportunity and a convergence of factors. It is a sovereign security whose returns are protected against inflation, with low risk, especially given Brazil’s recent public debt reduction of 2.34% from February to March 2026. But this convergence is unlikely to last much longer, as, in some way, it is a stroke of luck created by a geopolitical shock. As the effects of the Iran War fade, price pressure will ease, and rates are expected to return to normal levels, compressing yields on future bond issuances. Whether these yields truly reflect the value of the bond or simply serve as a compensation for underlying macro uncertainty, the opportunity is there, the risks are known, and the window is closing.