There is no optimism about the current moment in Brazil that can survive a good look at the interest and inflation curves. The term sounds tedious or too technical, but I’ll keep it simple. What’s more, you can make some money out of it even in the short term.
When creating an investment portfolio, it is common to buy some Treasury Direct bonds, fixed income securities that are government debt securities. And the rates offered to those willing to “lend” money to the government vary according to the risk taken.
As a result, bonds due two decades from now tend to pay more than bonds due close to maturity. This is because the difficulty of predicting the behavior of the market increases as the horizon moves away, in a Cartesian logic.
NTN-B, for example, is a public bond linked to inflation, which pays the amount invested, adjusted by the IPCA (our main inflation indicator) and added to a percentage of yield, the so-called rate.
At the end of 2019, before the start of the coronavirus pandemic, an NTN-B maturing in 2024 paid the IPCA correction plus a rate of 2%, while the one maturing in 2050 paid a rate of almost 3.5%.
When the Selic rate was 2%, this difference was even greater. For someone willing to invest in an NTN-B 2050, that is, lend money for the very long term, the government started offering rates of 4%, while those maturing in 2024 paid just over 1%.
Now, however, with the sequential advances of the Selic to try to contain inflation and the difficulty of guaranteeing some stability, even in the short term, the rates have leaned. Both are paying between 5.5% and 6%, in addition to the IPCA correction.
In other words: with the war making inputs more expensive, tomorrow has become as unpredictable as it will be 20 years from now. The good news is that this has tremendously increased the supply of well-paying bonds, and what’s more, there’s a good chance of making money from these bonds in the next few months.
Therein lies the most interesting opportunity: anyone who thinks that the idea here is to buy the bonds and carry them in the portfolio until maturity is wrong (who knows where they will be in 2050, by the way?).
The name “fixed income” is misleading. The gain is predictable for those who hold the papers until maturity. Along the way, however, there are opportunities to sell them on the so-called secondary market.
The magic of “mark-to-market”, which is the price practiced on the secondary market, is that it reacts to changes in the indices to which the security is linked. In the case of NTN-B, when the IPCA falls, the bonds are traded more expensive on the secondary market.
This is because, with the fall in inflation, the government tends to issue new bonds paying lower rates. Thus, those who bought an NTN-B with a rate of 6% have a valuable bond in their hands, since the next ones to be issued will pay less.
Therefore, when there is a drop in inflation, it is worth trading such papers before maturity, in the secondary market, and pocketing the difference. An interesting case, of 90% gains in about a year, with fixed income bonds, is here: bit.ly/3KU9CHt.
Our inflation has global origins and seems indomitable. Zonzo, the Bolsonaro government raises the interest rate while injecting more money into the economy, allowing new withdrawals from the FGTS.
Even so, experts find it difficult for the Selic to go much further than the current 11.75% per year. Thus, having bonds linked to the IPCA can bear good results in the coming months, for those who know how to trade on the secondary market.
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.