The Monetary Policy Committee (COPOM) yesterday raised the basic Selic interest rate to 11.75% per year. It’s been five years since Brazilians have been willing to invest at such a high interest rate. Thus, many question whether investing in bonds referenced to CDI or Selic are now the best alternative in the fixed income universe.
Exactly one year ago, the Selic rate was 2.75% per year. This 9% rise surprised everyone.
The Central Bank’s Focus report, which conducts a survey of leading economists in the market, showed on March 19, 2021 that the Selic rate should end 2022 at 6% per year. In this same report, inflation measured by the IPCA for 2022 was expected to be 3.51% per year.
As the inflation accumulated in the last 12 months surprised by rising above 10.5%, the Central Bank demanded a more energetic attitude than expected a year ago.
Usually, inflationary processes occur, as the population with a lot of disposable income promotes a rise in prices.
Unfortunately, this interest rate hike was not caused by economic growth. Therefore, fewer investors should take advantage.
For those with available funds, now is an excellent time to withdraw funds from the savings account to invest in fixed income products.
But it was not just the Selic that rose. Bonds referenced to the IPCA also have much higher rates than a year ago.
Despite the rise in the Selic rate, it still does not show a gain above considerable inflation. Therefore, bonds referenced to CDI and Selic should be used more as liquidity alternatives, or emergency reserve, as many like to call it.
As in the long term your objective is always to earn real interest, consider having a relevant part of your portfolio in IPCA-referenced securities, taking advantage of the current high rates.
As private bonds such as CDB, Debentures, CRI and CRA pay a premium compared to government bonds, they are good alternatives to boost fixed income gains.
Times when interest rates rise are also times when markets are more stressed and opportunities arise in fixed income and beyond.
Michael Viriato is an investment advisor and founding partner of Investor’s House
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