Short-term Treasury IPCA loses CDI for the year; find out if it’s time to leave – 09/07/2023 – From Grão to Grão

Until last Friday, the average of federal public bonds referenced to the IPCA with a maturity of less than five years, identified by the IMAB5 index, appreciated 8.9% in 2023. Investments that yield 100% of the CDI gained 9%, in the year. The more favorable movement of IMAB5 in relation to the CDI was reversed in mid-March. I discuss whether the trend has changed and what to do.

Until mid-March, IMAB5 appreciated by the equivalent of 149% of the CDI in the year. However, the relative yield until last Friday fell to 98.21% of the CDI. The loss related to the CDI has occurred since last week.

The graph below shows the evolution of an investment of R$ 10 thousand since the end of 2022 in CDI and IMAB5

Even short-term Treasury bonds referenced to the IPCA suffer from market volatility. Unfortunately for investors who don’t like to see fluctuations in their portfolio.

Therefore, this less favorable movement in the last six months cannot be seen as a trend. It is simply the result of fluctuations in interest rates due to international and local uncertainties.

The investor who invests in short-term IPCA-referenced securities, that is, up to five years of maturity, must have a monitoring horizon for the period, that is, five years.

Monitoring the relative return on a monthly basis can lead to constant frustration in relation to the CDI result.

In the last 20 years, if we evaluate the IMAB5 in relation to the CDI, in 5-year windows, the worst relative result of the IMAB5 was a return of 97.65% of the DI.

A result worse than 100% of the CDI only occurred in a short period and for investors who invested in the months of October and November 2003.

Disregarding these two months, the investor who started investing in any of the other weeks in the last 20 years has always won from the CDI in periods of five years.

The best relative result of IMAB5, in 5-year windows, was 173% of the CDI.

The best times to invest in these securities occurred precisely at the beginning of cycles of falling interest rates, like the one occurring now. This return is even greater if the investment is made in private securities such as CDBs or debentures, CRIs and CRAs.

Therefore, be patient, bear the volatility of returns and you will be rewarded by investing in short-term IPCA-referenced securities.

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

Talk directly to me via email.

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