Brazil EMBI directed graphs

Monthly — is the current spread priced?

very rich

Brazil EMBI looks very rich at 161 bp vs fair 199 bp (-38 bp / -2.5σ tight).

The EMBI tightened 25 bp over the last 6 months (197 → 171 bp). Last month it tightened another 3 bp. Last month’s move was led by US high-yield spreads (+9 bp, wider); USD broad (+5 bp, wider); the terms-of-trade gap (+2 bp, wider). It looks very rich because the market print (161 bp) is tighter than macro fair value (199 bp, gap -38 bp).

US high-yield spreads widened, which put downward pressure on the REER gap vs trend, which typically widens the EMBI spread. That does not appear to have been incorporated into the current spread.
USD broad increased, which put downward pressure on the real exchange rate (REER), which typically widens the EMBI spread. That does not appear to have been incorporated into the current spread.
US 10Y yields increased, which put upward pressure on the Selic, which typically widens the EMBI spread. That does not appear to have been incorporated into the current spread.

Current EMBI	161 bp (2026-10-15)
Macro fair value	199 bp (month-end 2026-09-30)
Rich / cheap	very_rich
Gap (current − fair)	-38 bp (-2.523σ)
Month-end residual	-28 bp
Residual σ	15 bp
In-sample R²	0.689

4 monthly print(s) may not yet have been tradable at the last EMBI date.

Parent	Δ last month	Contrib bp	Typical print lag (d)
us_hy_oas (t)	0.490	+8.6	0
dxy (t)	2.401	+4.8	0
tot_gap (t)	0.000	+2.4	45
tot (t)	0.000	+0.0	45
debt_gap (t)	0.000	+0.0	35
current_account (t)	0.000	+0.0	25

Has EMBI had time to trade the prints?

Input	Est. release	Traded after print?	Days since
us_hy_oas	2026-09-30	yes	15
tot	2026-11-14	pending	-30
tot_gap	2026-11-14	pending	-30
dxy	2026-09-30	yes	15
debt_gap	2026-11-04	pending	-20
current_account	2026-10-25	pending	-10

Monthly DAG

Narrative edges (strongest first)

From		To	Lag	β (z)	Child R²
public_debt_gdp	→	debt_gap	t	+1.000	0.279
fx	→	reer	t	-0.948	-7.641
nominal_deficit	→	primary_balance	t	+0.948	0.534
dxy	→	fx	t	+0.916	-18.328
sp500	→	equity	t	+0.898	0.072
selic	→	policy_fed_gap	t	+0.886	0.495
dxy	→	reer	t	-0.839	-7.641
fx	→	equity	t	+0.814	0.072
debt_gap	→	policy_fed_gap	t	-0.765	0.495
us_hy_oas	→	equity	t	-0.705	0.072
fed_funds	→	equity	t	+0.699	0.072
reer	→	equity	t	-0.677	0.072
tot_gap	→	current_account	t	+0.671	0.186
primary_balance	→	debt_gap	t	-0.669	0.279
primary_balance	→	public_debt_gdp	t	-0.669	-46.580
tot_gap	→	primary_balance	t	-0.633	0.534
debt_gap	→	selic	t	-0.622	-0.113
public_debt_gdp	→	selic	t	-0.622	-0.113
oil	→	embi_bra	t	-0.621	-2.143
cpi	→	policy_fed_gap	t	+0.616	0.495
equity	→	policy_fed_gap	t	-0.599	0.495
current_account	→	equity	t	+0.595	0.072
nominal_deficit	→	public_debt_gdp	t	-0.593	-46.580
primary_balance	→	selic	t	+0.591	-0.113
reer_gap	→	embi_bra	t	-0.579	-2.143
copper	→	tot	t	+0.574	-30061.986
tot_gap	→	equity	t	+0.567	0.072
us_hy_oas	→	fx	t	-0.563	-18.328
exports_growth	→	current_account	t	+0.542	0.186
copper	→	embi_bra	t	-0.514	-2.143
copper	→	equity	t	+0.512	0.072
current_account	→	fx	t	+0.510	-18.328
oil	→	tot	t	+0.505	-30061.986
ust_short	→	selic	t	+0.495	-0.113
tot	→	embi_bra	t	-0.488	-2.143
reer	→	embi_bra	t	-0.484	-2.143
copper	→	exports_growth	t	+0.475	-0.002
global_sentiment	→	equity	t	+0.465	0.072
us_hy_oas	→	reer	t	+0.459	-7.641
cpi	→	selic	t	+0.455	-0.113
nominal_deficit	→	selic	t	+0.455	-0.113
oil	→	reer	t	+0.454	-7.641
fx	→	policy_fed_gap	t	-0.447	0.495
reer	→	policy_fed_gap	t	+0.445	0.495
tot_gap	→	fx	t	+0.440	-18.328
tot	→	exports_growth	t	+0.430	-0.002
tot	→	primary_balance	t	-0.429	0.534
tot_gap	→	reer	t	-0.428	-7.641
sp500	→	policy_fed_gap	t	-0.418	0.495
tot	→	current_account	t	+0.416	0.186
reer	→	reer_gap	t	+0.416	-0.096
us_hy_oas	→	reer_gap	t	-0.415	-0.096
dxy	→	embi_bra	t	+0.411	-2.143
us_hy_oas	→	policy_fed_gap	t	+0.406	0.495
tot	→	reserves	t	-0.404	-493.559
reer_gap	→	selic	t	+0.397	-0.113
oil	→	fx	t	-0.392	-18.328
copper	→	tot_gap	t	+0.384	-24.901
reserves_growth	→	embi_bra	t	-0.357	-2.143
fx	→	embi_bra	t	+0.351	-2.143

ΔEMBI engine (holdout score)

Ridge on ΔEMBI: 1 risk (HY or VIX or S&P) + 1 rates/USD + 1 commodity + 1 local + 1 stock. Ranked by holdout R², not quintile lift. Best: theory|lags=[1] · parents: us_hy_oas, dxy, oil, equity, reer_gap · 182 train / 20 test through 2026-10-31.

From		To	Lag	β (z)	Child R²
us_hy_oas	→	embi_bra	t−1	-0.124	-0.002
equity	→	embi_bra	t−1	-0.084	-0.002
dxy	→	embi_bra	t−1	+0.040	-0.002
reer_gap	→	embi_bra	t−1	+0.034	-0.002
oil	→	embi_bra	t−1	-0.005	-0.002

Method	Lags	OOS R²	σ-quintile	Lift vs naive	Naive middle	±1 bin	3-class	Sign	RMSE Δ	Edges	Parents
theory\|lags=[1] ← best	[1]	-0.790	40.0%	-0.150	55.0%	85.0%	40.0%	60.0%	0.108	22	5
pc\|lags=[1]	[1]	-0.790	40.0%	-0.150	55.0%	85.0%	40.0%	60.0%	0.108	52	5
pc_strict\|lags=[1]	[1]	-0.790	40.0%	-0.150	55.0%	85.0%	40.0%	60.0%	0.108	45	5
tan\|lags=[1]	[1]	-0.790	40.0%	-0.150	55.0%	85.0%	40.0%	60.0%	0.108	15	5
hybrid\|lags=[1]	[1]	-0.790	40.0%	-0.150	55.0%	85.0%	40.0%	60.0%	0.108	50	5
theory\|lags=[1, 2]	[1, 2]	-0.848	50.0%	-0.050	55.0%	90.0%	50.0%	60.0%	0.110	22	10
pc\|lags=[1, 2]	[1, 2]	-0.848	50.0%	-0.050	55.0%	90.0%	50.0%	60.0%	0.110	52	10
pc_strict\|lags=[1, 2]	[1, 2]	-0.848	50.0%	-0.050	55.0%	90.0%	50.0%	60.0%	0.110	45	10
tan\|lags=[1, 2]	[1, 2]	-0.848	50.0%	-0.050	55.0%	90.0%	50.0%	60.0%	0.110	15	10
hybrid\|lags=[1, 2]	[1, 2]	-0.848	50.0%	-0.050	55.0%	90.0%	50.0%	60.0%	0.110	50	10
theory\|lags=[1, 3]	[1, 3]	-1.199	35.0%	-0.200	55.0%	90.0%	35.0%	65.0%	0.120	22	10
pc\|lags=[1, 3]	[1, 3]	-1.199	35.0%	-0.200	55.0%	90.0%	35.0%	65.0%	0.120	52	10
pc_strict\|lags=[1, 3]	[1, 3]	-1.199	35.0%	-0.200	55.0%	90.0%	35.0%	65.0%	0.120	45	10
tan\|lags=[1, 3]	[1, 3]	-1.199	35.0%	-0.200	55.0%	90.0%	35.0%	65.0%	0.120	15	10