Traders expect Flávio Bolsonaro to win Brazil's runoff but doubt a margin under 4 points

Traders still expect Flávio Bolsonaro to beat Luiz Inácio Lula da Silva in Brazil's presidential runoff on October 25, but they have turned against the idea that he wins by under 4 percentage points. Bets on that narrow margin dropped sharply Tuesday, from a toss-up to unlikely. The reason for the drop is not clear.

The obvious candidate does not fit. Two polls released Monday showed Flávio narrowly ahead among valid votes. AtlasIntel/Bloomberg put his lead at 2.2 points, according to JOTA, and BTG/Nexus had him at 50.3% to Lula's 49.7%, Folha de S.Paulo reported. Both results are consistent with a margin under 4 points, so they do not explain why traders pulled back a day later.

Taken together, the margin bets still point to a Flávio win. A Lula victory by under 4 points is unlikely, and a Flávio win by 8 to 12 points is a long shot. A Flávio win by under 4 points and one by 4 to 8 points are now about equally likely, with the narrower result holding a slight edge across the full set of margins. Neither is favored on its own.

The odds have swung widely. Early in October, a margin under 4 points was unlikely. It gained ground from October 13 through October 15, held steady through the weekend, and then jumped Monday after the new polls, briefly reaching a toss-up. Most of that gain disappeared Tuesday, with much of the fall coming in the final hours of the day.

Flávio won 47.03% of valid votes in the first round to Lula's 45.16%, according to the Superior Electoral Court, and neither candidate reached a majority. Polls since have tightened. Quaest on October 14 had Flávio at 46% and Lula at 44% of total votes, and Datafolha a day later reported 51% to 49% of valid votes. Polls are not results, and the official count will decide the margin.

The candidates are due to meet in a TV Globo debate on Friday, October 23. Campaign statements, late polling and turnout could still shift expectations before the vote.