This article investigates the determinants of the risk premium in Brazilian nominal interest rates. The risk premium reflects the compensation investors require for holding long-term bonds instead of sequentially investing in short-term bonds. The study estimates risk premiums embedded in the Brazilian yield curve and analyzes their relationship with a comprehensive set of domestic and external macroeconomic variables. This is, to our knowledge, the first application of the ACM model to Brazil using such a comprehensive macro-financial variable set. Regression results reveal that the policy rate, long-term public financing cost, inflation expectations, public debt indicators, U.S. interest rates, USD/BRL exchange rate, and global volatility measures are statistically significant drivers. The time-series decomposition highlights the predominance of domestic interest rates and the increasing role of external shocks in periods of heightened global uncertainty. These findings contribute to the understanding of long-term interest rate dynamics in emerging markets.
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