IPCA 2029 Treasury or CDB at 110% of the CDI: which one will make your money return more? – 09/30/2024 – From Grain to Grain

At the beginning of 2024, there was a strong expectation that the Selic would end the year at around 9% per year. Some analysts even predicted a drop of up to 8% per year. However, as of May, the Central Bank signaled that it would not continue with the reduction trend. Subsequently, the scenario became even more uncertain: we entered a cycle of rising interest rates. What makes this cycle different? Inflation is not sky high. This leads us to a crucial question: is it worth investing in the IPCA 2029 Treasury?

Choosing the correct index for a fixed income security involves risk. Depending on your objective, choosing between a pre-fixed security, indexed to the IPCA or the CDI (Selic) may mean losing an advantage over the reference index, if the chosen security is not aligned with your goal.

For example, if your goal is to surpass the CDI, opting for an IPCA or prefixed bond carries a significant risk. Likewise, if the objective is to overcome inflation, both a CDI-referenced and a pre-fixed bond present risk. Therefore, as important as focusing on returns is ensuring that the chosen indexer is aligned with your objectives. The discussion about how to make this choice will be left for another opportunity, but today we will focus on the expected return of two specific bonds: the IPCA 2029 Treasury and a CDB that pays 110% of the CDI.

Currently, the Treasury IPCA 2029 is being traded on Tesouro Direto with a rate of IPCA + 6.56% per year. Considering the custody cost of Tesouro Direto, this effective return drops to IPCA + 6.36% per year.

To estimate which security will bring the highest return, we need to project the IPCA and CDI until 2029. Of course, this estimate involves risks, but every investment is made based on a scenario, and every scenario has the possibility of not coming true. When this happens, it is essential to reevaluate the strategy according to the new reality. This is the minimum that can be expected from a responsible investment decision.

Let’s consider an average scenario projected by experts, where the CDI for the next five years (from 2025 to 2029) will be, respectively, 12%, 11%, 10%, 9% and 9% per year. The IPCA should follow a trajectory of: 4.5%, 4%, 3.5%, 3.5% and 3% per year. For the last quarter of 2024, we will assume CDI and IPCA of 11% and 4.5%, respectively.

In this scenario, the IPCA 2029 Treasury would yield the equivalent of 100.5% of the CDI, while the CDB at 110% of the CDI would provide a yield of 112.4% of the CDI. As I mentioned previously, a security that yields more than 100% of the CDI tends to offer a superior return in the medium term.

Thus, when investing R$10,000 in both assets — Treasury IPCA 2029 and CDB at 110% of the CDI —, the expected final balance would be R$16,700 and R$17,500, respectively.

It is important to highlight that the 2029 IPCA Treasury still carries an additional risk: in the next six months, there may be an even more unfavorable mark-to-market, increasing volatility.

Therefore, in the scenario analyzed, the CDB at 110% of the CDI offers a better return perspective compared to the Treasury IPCA 2029. Furthermore, if the investment is made within the FGC guarantee limit, the risk associated with the CDB is extremely low . This makes it a more attractive choice, especially for the next 12 months, a period in which the Selic rise will prevail. The decision to invest in the Treasury or the CDB depends on the investor’s risk profile, but, at this time of uncertainty, the CDB seems to be the safest and most profitable option.

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

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