Understand if we are going to have another bad phase for securities referenced to the IPCA – 07/01/2023 – From Grain to Grain

The recent surprises of fuel price cuts and lower inflation bring a bad memory for investors. In the second half of last year, the IPCA had the biggest negative retraction since the start of the Real plan. At that time, securities linked to the IPCA performed worse than those linked to the CDI. Combining the two moments, investors face the dilemma of whether it is better to invest in securities linked to the IPCA or the CDI.

The May IPCA, released on June 9, was the trigger for a series of inflation revisions for the year and the following months.

The Focus report by the Central Bank (BC) of April 28 pointed out that the average of economists believed that the IPCA for the year 2023 would be 6.05%.

The scenery has changed.

The same BC report now indicates that economists believe that the IPCA should be 5.06%, for the year 2023. commodities surprised to the downside and the new president of Petrobras altered the pricing policy, apparently with a downward bias.

However, this 1% revision in the IPCA should not change the advantage of investing in securities linked to the IPCA, if the investment is for the long term.

The main reason for this is that, in the same way that the IPCA fell, a greater drop is also expected for the CDI.

However, before understanding the great advantage of securities linked to the IPCA in the long term, I will explain what should happen in the short term, that is, up to two years.

The expected CDI for 12 months is 11.66% per year. The IPCA in the same period, that is, until June 2024, should be 4.5% per year. Therefore, investments referenced to the CDI should yield 6.9% above the IPCA over the next 12 months.

Thus, investments maturing in one year referenced to the CDI tend to be more favorable. The risk for this is an acceleration in the cycle of interest rate cuts by the Central Bank, which could bring the CDI down and IPCA-linked securities gain an advantage.

But anyone looking at the short term could be sucking their thumb next year.

The scenario for two years is already different. The market expects the average CDI in 2024 to be 9.7% per year. Therefore, next year, it is expected that investments that remunerate the CDI yield only 5.5% above inflation.

In the coming years, this real CDI gain should continue to fall.

Therefore, take advantage now to invest for the long term in CDBs referenced to the IPCA with a rate higher than 6% per year and, mainly, in private securities linked to the IPCA of good companies with a rate higher than 6% per year above the IPCA and exempt from GO.

A IR-free security with a return of IPCA + 6% per year is equivalent to a gross IR security with a return of IPCA + 7.7% per year. This gross return should be equivalent to more than 150% of the CDI over the next 6 years.

In the last 20, 15, 10 and 5 years, an investment with a gross return of IPCA+7.7% per year was better than the profitability of the main traditional investments such as: Ibovespa, S&P500, Nasdaq, CDI, multimarket average and others.

So, the answer to the question posed in the title is no. We’re not going to have a bad time for IPCA-linked bonds, if you think about the long term. On the contrary, we are living in an almost unique period. This is one of the few times when you have this kind of profitability available.

So don’t stare at the ground or you’ll fall off the bike. Look forward and enjoy the moment.

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

Talk directly to me via email.

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