BC signals end of Selic high: is it time to invest in fixed rate?

BC signals end of Selic high: is it time to invest in fixed rate?

With the brake on the cycle of high interest rates, the opportunity arises to invest in short-term fixed rate bonds that are paying, on average, 13% per year. Learn how experts evaluate these applications

O central bank already sent to warn: the cycle of high of the Selic will end soon. At the last meeting of the Monetary Policy Committee, Copom, the basic interest rate was raised to 12.75%. The minutes released after the meeting explained that this must have been the last or penultimate increase in the Selic. As of now, the most likely options are for another half-percentage point increase, or for the rate to stay as it is.

That doesn’t mean, however, that interest rates will start dropping anytime soon. Economists’ projections consider that the Selic will begin its descent, step by step, only next year. Until then, bond yields fixed income must remain above two digits.

The end of the Selic high cycle and the permanence of the rate at high levels for a longer time may open a good window for investment in fixed-income securities, such as prefixed credit (CBD, LCI and others) and the LTN (as it is called Prefixed Treasure).

These bonds consider interest projections to calculate the rate of return – rate, which, as the name of the application says, is pre-contracted and does not depend on any variable.

Analysts heard by EXAM assess that such interest projections, especially those in the short and medium term, may be more pessimistic than the real scenario. In other words: the market is calculating higher interest rates than we are likely to have in the next few years.

“We have a constructive vision for the short-term fixed rate. I believe that the market is overpricing the risk, as the Selic should start to fall in the medium term. Buying a fixed rate and ‘locking in’ the yield at a rate of 12 or 13% can be advantageous”, he explains. Odilon Costafixed income and private credit analyst at BTG Pactual.

Costa also says that this more pessimistic view causes fixed-rate bonds to have a “fat” in relation to floating-rate bonds. This means that the pre-agreed rates will possibly be higher than the CDI value in the next two years.

O Prefixed Treasury 2023, a reference for short and medium term fixed rate securities, is currently offering an annual yield of around 13%. This is a higher return than that of bonds of the same class maturing in 2025 and 2026, which corroborates the view that the Selic rate may fall from next year onwards.

See below the rates of return on Fixed-rate Treasury bonds:

Is it worth investing in a medium or long term fixed rate?

When the focus is no longer on the horizon of one or two years, the specialists’ view becomes more cautious. The still undefined presidential election, which will determine the economic line that Brazil will follow for the next few years, and other unpredictable factors, such as the course of interest rate policy in the United States, leave much of the future open.

Therefore, betting on a level of interest (whatever it is) in the medium and long term is even more risky, and offers little advantage over investing in a floating rate linked to interest and inflation. Although there is a perspective of a fall in the Selic and IPCA, both indicators should remain at high levels in the coming years.

“I don’t believe that investing in a 5 or 10-year fixed rate makes sense because, although there is a ‘surplus’ in the yield curve, we see ahead of us a scenario of inflation that tends to accelerate”, ponders the analyst at BTG Pactual.

Filipe Albertcredit manager at Factor, recalls that the price of commodities (such as oil, ore and grains) remains under pressure, which indicates that inflation will take time to subside. On the other hand, the BC has already started to signal that fighting this external pressure with interest rates is becoming counterproductive.

“The coming months will show the legacy of these effects for the economy and for interest rates. There is still a lot to be done”, recalled the manager.

Investment in IPCA can be an opportunity

In this way, the choice of post-fixed can also bring opportunities. BTG has indicated to its clients the purchase of short and intermediate duration bonds (time required for the bond to deliver the yield) – from 3 to 5 years.

For Guilherme Lagnadomanaging partner empiricalit makes sense for investors to allocate part of their resources to floating rates linked to the IPCA.

“If you have part of your equity invested in inflation, then you are protected against price shocks, and you still have the guarantee of real gains. It is an important benefit, even more considering that the world is going through a very unprecedented economic context”, recommended the manager.

Source: Exam

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