With the Selic unchanged, find out if it’s worth investing in a bond referenced to the IPCA – 05/03/2023 – From Grain to Grain

The Selic rate reached the current level of 13.75% per year on 8/3/2022. Since then, today’s decision by the Monetary Policy Committee (Copom) was the sixth in which the Central Bank (BC) kept the rate stable. The main reason for this rate is persistently high inflation. But, is inflation high enough to make it worth investing in IPCA-linked securities?

Investments referenced to the CDI or Selic are addictive. Brazilian investors are addicted to them. A few “faces” still insist on saving, but it’s because they’ve never tried the CDI.

Giving up this addiction is not easy. After all, what’s not to like about a stable asset that doesn’t fall and has great remuneration?

Make no mistake, this loud CDI won’t last forever.

This means that it is very important to look at the longer horizon and start to consider what you can have on hand when rates come down.

According to market estimates, the CDI and Selic should close this year at 12.75% per annum. In addition, the economy’s basic rate should end 2024 at 10% per year, according to the average expectation of economists, disclosed in the BC’s Focus Report.

Today there are CDBs yielding IPCA+6.5% per year for five years.

The expected inflation in 12 months is close to 5.5% per year.

When we accumulate the two yields, we arrive at a yield of 12.36% per annum.

Many compare this return with the current Selic rate. However, the calculation is wrong, as the Selic should start its downward trajectory in August or September of this year.

Therefore, whoever holds a bond yielding the CDI will not have the yield of 13.75% in the next 12 months. The most likely return is close to 12.5% ​​over the next 12 months.

Yes, the investment in the Selic or CDI should still be better for the next 12 months in relation to bonds referenced to the IPCA of the same term.

However, if you only focus on 12 months, you may lose the great advantage of IPCA-linked bonds with longer maturities. This is because if you wait for the next year, you should no longer find the current rates on these bonds.

It is important to consider that in the next 4 years, Selic should reach even lower levels.

Therefore, when investors invest in a longer-term CDB with a return of IPCA+6.5% pa, they guarantee this return for the entire term.

In the last 20 years, on average, the Selic had a real interest rate, that is, an interest rate above the IPCA of only 4.9% per year.

Therefore, for the medium and long term, that is, for those who invest with horizons of 5 years or more, securities with real interest rates above 6% per year should yield much better than the Selic rate.

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

Talk directly to me via email.

Follow and like De Grão em Grão on social networks. Follow the investment lessons in Instagram.

PRESENT LINK: Did you like this text? Subscriber can release five free hits of any link per day. Just click the blue F below.