December 8, 2022

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Focusing on the high end of the Selic cycle, experts are beginning to turn to long inflation bonds

Focusing on the high end of the Selic cycle, experts are beginning to turn to long inflation bonds

The perception by part of the market that the high Selic cycle, already at 13.25% per year, should end soon, has caused specialists to look intently at the furthest part of the yield curve. Some find long-term inflation-linked government bond rates attractive.

According to Nicholas Giacometti, fixed income specialist at Blue3, long-term bond prices are more sensitive to risk, and therefore vary more intensely. Thus, it is possible in them to find opportunities for capital gains in the early exits, before the maturation of the leaves.

Explain yourself: the interest offered by a fixed income security has an inverse relationship with its price traded by investors. When prices fall, their value tends to rise. And the opposite is also true.

expectation (Even if not by default) Interest rates stop rising at upcoming Copom meetings – and much later, start to cool off – may favor higher inflation bond prices. In practice, due to the so-called “transfer to the market” of securities, some experts believe that their value can be increased.

In that case, papers with longer maturities, such as 2060, might be good options for allocating this goal, says Giacometti. Since this type of accrual is not available on Treasury Direct, an alternative is to allocate to Treasury IPCA + 2055, for example.

Another option, says the expert, is to invest in bonds due in 2035, in which the risk-reward ratio looks attractive. On Monday (27), for example, the newspaper offered a real interest rate of 5.78% per annum.

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The strategy represents a change for investors, as until recently the main recommendations of the analysis role revolved around short-term inflation-linked bonds, such as Treasury IPCA + 2026 (which, incidentally, has not been completely omitted from the indicators ). The key point was to avoid riskier securities, in the face of a cloudy interest rate scenario.

It is a fact that the environment is still very uncertain, but the approaching end of Selic’s high cycle has weighed when it comes to allocating these types of securities at MAG Investimentos as well. The reason is related to a recent study by the director.

Patricia Pereira, chief strategist for the director, explains that the survey showed that government bonds with longer-term inflation tend to perform better than those with shorter maturities during periods of stability in Selic or towards the end of the increase cycle. modified.

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For the analysis, the chief strategist compared the performance of the IMA-B5+ (a fixed-income index composed of inflation-linked government bonds with maturities equal to or greater than five years) with the yield of the IMA-B5, which includes securities with a maturity of five years or less.

According to the study, between September 2015 and October 2016, for example, when there was a period of high interest rates followed by another period of Selic stability, IMA-B5+ rose by about 40%, while IMA-B5 advanced by about 21%.%.

Similarly, when the Selic index declined after a period of highs between September 2011 and November 2012, the longer IMA-B made a gain of about 38%, versus 20% for the shorter IMA-B.

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On the other hand, in higher Selic periods, such as March 2021 onwards, the shorter-leaf index (IMA-B5) performs better than the long-leaved index (IMA-B5+), with an advance of close to 11% versus a decline of 0.4%, respectively.

Patricia argues that the largest rise in short-term bonds in relation to long-term bonds in recent months is occurring because the inflation shown in the indicators has been higher than expected by economists.

But in May, there was a reversal: long-term inflation-linked bonds advanced more than short-term bonds, rising 1.16% versus 0.78%. The strategist notes that this “may indicate end-of-cycle pricing”.

For her, the justification lies in government actions to try to lower fuel prices. In the calculations of market agents, such measures could reduce inflation expectations this year by up to 3 percentage points, reducing the chances of the central bank raising interest rates beyond current expectations, which are between 13.50% and 13.75% each. . general.

In this case, says Patricia, the tendency for short-term papers to perform worse than long-term papers.

Uni, duni, have

Although long-term allocations have gained space in the portfolios of some homes, positions in short-term securities follow the preference of other allocations. Such is the case of Daniel Onaga, a fixed income and credit analyst at Eleven Financial.

In the expert’s opinion, the ideal now is to keep most of the allocation in floating rate bonds and take a position in inflation-linked bonds with a shorter duration, such as Treasury IPCA + 2026, without forgetting to leave a percentage to invest in. Other occasional opportunities. “It’s time to focus on capital preservation, as well as flexibility and liquidity to make other provisions,” he says.

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With this in mind, the homeowner recently included in its fixed income portfolio a purchase proposal for IPCA + 2032 Treasury. Duration (the weighted average of the period during which the investor receives the flow of the security) and therefore the risk.

“We recommended an extension, but in a committed way,” he thought. “The focus is on getting a larger portion of the curve, but that kind of allocation should only fit a small portion of the portfolio,” Onaga added.