Opinion – From Grain to Grain: What is better, investing in a bond at 100% of CDI or IPCA+6% per year?

Next Wednesday, the Monetary Policy Committee (COPOM) should raise the basic rate of the economy to 11.75% per year. But this will not be the last increase. The latest increases in fuel and food prices suggest that inflation is also likely to rise. Thus, investors debate whether it is better to invest in a bond referenced to CDI or IPCA.

CDI and Selic returns are very similar. Therefore, when I talk about a CDI-referenced security, understand that the same could be attributed to a Selic-referenced security.

Estimating how far the Selic rate can rise seems simpler than estimating the evolution of inflation.

According to Bloomberg data in the figure above, the CDI should surpass the mark of 13.8% per year at the end of September.

Considering all the evolution of increases and decreases that the market expects for the CDI, an investor who invests in a CDB that yields 100% of the CDI should earn 13.2% in a year.

The longing for this return makes many want to cling to it. A comeback of this magnitude has not occurred since early 2017.

But is it better than investing in a CDB that yields IPCA+6% per year?

The chart above has two panels. In the upper panel, there is the evolution of the Selic rate and the IPCA in the last ten years. In the lower panel, there is the difference between the two rates, that is, Selic – IPCA.

Note that only in 2017 the Selic rate managed to surpass the return of IPCA+6% per year.

This Selic advantage occurred because the IPCA began to decline quickly and the COPOM took a while to reduce the Selic rate.

At this moment, we are going through a contrary movement. The Selic is still barely able to overcome the IPCA and the latter has not yet shown signs that it will start to fall fast.

For an investment that yields IPCA+6% to lose from another that earns 13.2% in a year, ie the expected CDI, inflation in this period must be less than 6.8% per year. I remind you that the last records show an accumulated inflation in 12 months of 10.5% per year.

Therefore, you will hardly regret choosing a CDB referenced to IPCA + 6% per year over another that yields 100% of the CDI.

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

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