This week I received several questions about whether it is true that there is a national treasury bond being traded at IPCA + 11% per year. It looks like a cod head, but it’s true. I explain below why it trades at this rate and when it’s worth it.
When the investor looks at the Treasury Direct platform, he only sees a small sample of the National Treasury securities traded on the market.
On the Tesouro Direto platform, rates on IPCA-linked securities range from IPCA+5.5% to IPCA+5.8% per year, currently. However, these are not all available titles and rates.
This week, investors noticed that on the brokers’ platforms there was a National Treasury bond trading at IPCA + 11% per year. This security was traded at IPCA + 7% per year last Monday. The chart below shows the evolution of this security’s trading rate in recent years.
Several felt that the higher rate was a fault of the broker. All of us who shop at the supermarket are used to having the wrong prices on the shelves. But, this is not the case.
How is such a big difference possible?
The reason is the maturity date and the change in expectations for the IPCA in this time interval.
The maturity of this security is in August, more precisely, on 08/15/2022. So, there are only two months left until the due date.
Understand that there is no arbitrage here, that is, it is not an operation in which you have earned a certain amount above the CDI without risk. But what is the risk of investing?
This is a very short-term government bond. These bonds usually trade with an expected yield very close to the CDI.
The CDI expected in this period is 13.10% per year. In this case, the expectation for the IPCA, implicit in the title over the next two months, is 1.9% per year. An inflation of 1.9% per year is equivalent to a monthly rate of 0.16%.
For those who follow the IPCA in recent months, this rate seems almost unlikely.
However, it is possible. Congress can pass the fuel and energy tax cut. This tax reduction can promote a large reduction in prices and, consequently, make inflation even negative in the next two months.
Therefore, investing in this security is a big bet on the IPCA for the next two months. I will make a simplified account to illustrate.
Considering a CDI rate of 13.10% per year, its opportunity cost is a gain of 1.03% per month.
For example, if you believe that the IPCA in the next two months will be 0.6% per month, then this Treasury bond would yield 1.48% per month. Thus, you would earn 144% of the CDI for two months.
However, if inflation in the next two months is equivalent to -0.5% per month, the yield on this security would be 0.37% per month. Therefore, its return would be equivalent to only 36% of the CDI.
As the IPCA implicit in the security is 0.16% per month, it is as if the market attributed a 60% probability of the IPCA being 0.6% per month and 40% of being -0.5% per month in the next two years. months.
If you believe that there is a probability greater than 60% that the IPCA will be 0.6% in the next two months, then you should invest in it. Otherwise, it is better to stay in fixed income referenced to the CDI. So, how is your IPCA projection?
Michael Viriato is an investment advisor and founding partner of Investor’s House
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I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
