Opinion – From Grain to Grain: Disregarded last semester, this fixed income could surprise

The official inflation index, the IPCA, accumulated a rise of just 0.28% throughout the second half of 2022. This meant that IPCA-linked assets underperformed the CDI at that time. However, some factors should make the reign of the CDI lose strength, but to take advantage of it, your investment horizon must be long term.

In the first half of 2022, the accumulated IPCA was 5.49%. At that time, IPCA-linked securities paid 5.5% per year above inflation. Therefore, the return on these securities was 8.35% in the first half of 2022.

In this same period, the CDI appreciated by 5.42%. Therefore, below the IPCA and a security referenced to the IPCA. In other words, in the first semester, the preference for securities linked to the IPCA seemed obvious.

This scenario changed radically in the second half.

The forced reduction of fuel taxes caused the IPCA to show negative variation for three consecutive months, for the first time in 20 years.

As a result, the IPCA in the second half of 2022 was only 0.28% and the same previous title (IPCA+5.5% pa) appreciated by only 3% in the period. The CDI gained 6.62% in the second half.

This CDI advantage encouraged many investors to try to migrate part of what was possible from their fixed income portfolios to this index.

However, this advantage may be expired. That is, until the end of 2023.

This week, the debate for changing the inflation target to be pursued by the Central Bank intensified. The government shows signs of being comfortable with slightly higher inflation. Perhaps slightly above 6% per year.

This comfort is not for nothing. We know that inflation works like a tax on everyone and the government needs to raise revenue to fulfill its promises.

With this, the market already considers in the prices of the bonds an inflation above 6% per year for the next few years.

If the target is raised, the Central Bank could eventually even reduce the Selic rate, as the target would already be met with a lower interest rate.

Allied to this, there is the possibility of returning taxes reduced in the previous year.

According to Anbima’s projection, the expected IPCA for February should be 0.81% per year.

The CDI should still be one of the best fixed income indexes for this year. Fixed income securities, such as CDBs, and fixed income funds with yields above 110% of the CDI should appreciate close to 15% in 2023. Considering an IPCA of 6% in 2023, this would represent a real yield of 8.5% per year. Therefore, for 2023, CDI should still be the winner. This is if the BC does not reduce the Selic soon, the risk I mentioned above.

This CDI lead should drop sharply very soon.

Today, it is possible to invest in CDBs at IPCA+7.5% per year for 3 to 4 years. This year, they shouldn’t earn 110% of the CDI. But they should produce returns between 125% and 140% of the CDI, starting in 2024.

Some private credit securities such as debentures, CRIs and CRAs, with income tax-free, with maturities of more than five years and from companies with AAA risk rating, are traded at IPCA + 7% per annum. This return would be equivalent to a taxed bond with a yield of IPCA + 9% pa. Therefore, even more advantageous, although with greater risk than a security guaranteed by the FGC, such as a CDB.

However, none of these real rates, that is, above the IPCA, should persist beyond 2023. Thus, to guarantee a higher return in the future, you will have to give up returns above the CDI in 2023.

Therefore, it is important to have a balance in the fixed income portfolio referenced to the IPCA for the long term (above 3 years) and the CDI for the short term (up to two years).

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

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