Opinion – From Grain to Grain: I explain the biggest doubt of Treasury Direct investors

When you invest in fixed-income government bonds to maturity, there is not much doubt about what you get, as the rate is contracted upon acquisition. The problem is in the middle. In the intermediate period, that is, before maturity, initial investors have doubts about profitability, income tax, sale value and others. Today I answer the question of Mr. Dercy José de Sá Filho that I consider one of the most difficult.

I transcribe the question as he wrote to me: “Is it correct to say that if I have several purchases of the same security and I intend to sell one of these, the treasury sells the oldest one? purchase rate (example IPCA+) lower than the one negotiated at the time of sale.”

Mr Dercy’s question can be broken down into several doubts. Imagine an investor who made several purchases of the same Treasury Direct bond at different times and wants to partially sell it before maturity:
1 – Which title is sold first?
2 – Is an average price calculated since it is the same title?
3 – If I have a loss on the sale, is there compensation for the loss with a future profit since it is the same title?
4 – Does the way of selecting which security to sell by Treasury Direct affect me if I have a profit at market value on a security and it is chosen by the order?
5 – Does the way of selecting which security to sell by Treasury Direct affect me if I have a loss to market value in a security and it is chosen by the order?

To make sure of the answer, I had help from the National Treasury. Who helped me in this technical part, preferred that I not identify him for reasons of compliance.

But he has already committed to doing an interview here about news that should appear on the Tesouro Direto platform at the end of the year, when disclosure restrictions are lifted.

I will answer the above questions in order.

If you made multiple purchases of the same security at different times, the sell order follows the buy order. The first security you buy is the first one you sell, and so on. This choice is automatic by B3. Purchase made in the longest time is the one that is subject to the lowest IR rate.

Each purchase is handled individually. Therefore, the average acquisition price is not calculated as in shares.

Each security is sold at its acquisition price. There is also no IR compensation for loss.

Thus, we answer the first three questions. Let’s go to the most difficult ones.

To explain the last two, I’ll use a more simplified numerical example.

While investors focus a lot of attention on the acquisition interest rate, it is important to understand that for every rate there is an associated price. Let’s take the example, therefore, with price that is easier to understand.

Consider an investor who bought the same security at two times. Understand that if it’s the same security, all purchases will have the same price at maturity. Let’s assume, in our example, that this price is R$ 1,000.00 at expiration.

At first, he bought an amount of the security at a price of R$500 and, at a later time, he paid the price of R$800 for an amount of the security.

Assume that the market price at the sale is $700.

If he sells a quantity of the security, the sale will be of the security acquired for R$500, that is, the one that was bought first.

Remember that associated with a lower price, there is a higher rate and vice versa.

So, one could argue that the Treasury is hurting you because it is selling the bond purchased at a higher rate. But, let’s do the math.

Assume that it will bring the remaining security to maturity.

Selling the bond bought at R$500 will now give him R$200 in gain. The bond taken to maturity will also generate R$200 of gain until maturity, as it matures with the amount of R$1,000. Thus, the total gain was R$400 in both securities.

If the opposite were done, that is, the security was sold at a higher price than that purchased last. In this case, this sale would result in a loss of R$100. The bond with the lowest price, until maturity, would generate a gain of R$ 500.

Therefore, the final result is the same value of R$ 400 (500 – 100).

Therefore, if the bond purchased first was the one with the highest value, that is, the lowest interest rate, you would have the same end result at maturity.

Thus, the answer to the last two questions is that you are not harmed by the sale order of the Treasury Direct bond, both in the case that you have a profit on the sale, and in the case that you have a loss.

The order benefits you in considering the lower rate of income tax for securities to be sold before maturity.

I thank Mr Dercy for the question raised and my colleague from the Treasury for his help.

If you have any other questions, please let me know. Who knows, maybe she’s selected to appear here.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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