Brazil runoff markets favor Bolsonaro, but not a blowout
Flávio Bolsonaro leads the election market by a wide margin, but traders expect a much tighter result in the margin market. Why is there a gap?
Brazil is nearing its much-anticipated presidential runoff set for October 25. But it’s doing so with a major disconnect between election markets and polling, as well as a notable gap between the election and margin markets.
Polymarket traders heavily favor Flávio Bolsonaro over incumbent Luiz Inácio Lula da Silva, but they seem far less convinced that Bolsonaro will win by a comfortable margin.
At the time of writing (Thursday, noon UTC), the broader election winner market gave Bolsonaro a 78% chance of victory, compared to Lula’s 22%.
A separate regional market also has Bolsonaro ahead in the second round, 72% to Lula’s 28%.
But the margin-of-victory market adds another layer to it and tells a more nuanced story. A Bolsonaro win by less than 4 percentage points was priced at around 41%, while a margin of 4-8 points stood at 34%. Lula winning by fewer than 4 points had an 18% probability.
Together, these prices suggest that traders certainly expect Bolsonaro to win, but that they also expect it to be by a narrow result.
Polls could explain the tight story
The small margin anticipated by traders could be explained by the results of polls, which generally present a much tighter competition.
A Quaest poll published by Reuters on October 21 put Bolsonaro at 45% and Lula at 44%, within the survey's 2-point margin of error. A week earlier, Bolsonaro had led 46% to 44%, which means that the race is actually tightening rather than breaking decisively in Bolsonaro's favor.
The first-round result is another reason for caution. Bolsonaro did finish ahead of Lula, but the gap was less than 2 percentage points.
And while these polls don’t explain the massive difference in prices between the two candidates in the broader election market, they do provide at least part of the reasoning behind the smaller anticipated margin of victory.
With voting just three days away, there is little time for a major shift in sentiment. So for now, traders’ message is clear: Bolsonaro remains the favorite, but a landslide is far from a foregone conclusion.
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