SAO PAULO – The Brazilian investor had yet another test of fire when analyzing the performance of its investments in Tesouro Direto in August. Although fixed income may attract those interested in being more financially conservative, with assets less subject to price fluctuations, the domestic news has generated strong emotions in recent times.
Once again, amid the stress linked to Brazilian political and fiscal issues, investors saw the premiums of securities traded on the Tesouro Direto increase, reflecting a demand for fatter returns to lend resources to a government under pressure.
The rates came to exceed 11% in the case of bonds with fixed-rate yields and to pay real interest of 5%, in the case of bonds with returns linked to long-term inflation.
• 17% interest on fixed rate and real gain of almost 8% on inflation-linked ones; check out times when government bond returns exceeded current levels
Opportunity for some, concerns for others, who have seen the income accumulated in the Treasury fall month after month.
In August, it was no different and the biggest drop came from the IPCA+ Treasury paper maturing in 2045, whose price dropped by around 4% last month, with an accumulated drop of 20.7% in the year. The longer the term of the paper, the greater the unpredictability of the scenario, so it is natural that price fluctuations are wider.
In any case, all securities currently available for purchase at Tesouro Direto had their prices falling (and the consequent rise in rates) in August, as well as falling in 2021. It is worth remembering, however, that the losses indicated will only be effective if the investor decide to sell the papers in advance. If you carry them to maturity, the return will respect the rates and conditions agreed upon at the time of purchase of the bonds.
Check out below how government bonds available for new investments behaved in August, in the year and in 12 months.
Inflation and fiscal ceiling worry
There are a number of issues on the agenda that have dictated the direction of markets in general, including government bonds.
Concerns about a lack of fiscal control are increasingly high, with investors aware of the possibility of breaking the spending ceiling amid the lack of a clear solution for the payment of precatory payments and still keeping an eye on the government’s programmed expenditures for the Aid Brazil (new program that should replace Bolsa Família).
The government sent the Annual Budget Law Project (PLOA) of 2022 to the National Congress yesterday. The proposal provides that Auxílio Brasil will have the same level of resources foreseen for the old program in 2021, which was estimated at R$ 34.7 billion . The text sent also includes that the minimum wage will go to R$ 1,169 in 2022.
Another point of tension lies in inflation, especially with the worsening water situation in the country. Yesterday (31), the National Electric Energy Agency (Aneel) and the Ministry of Mines and Energy announced a new tariff flag, with a 49.63% increase in extra charges as of September. Aneel estimates that the final impact on the electricity bill will be 6.78%.
The measure should result in even more pressured inflation. The financial market has been revising the projection for the Extended National Consumer Price Index (IPCA) for 21 weeks, with the latest estimate of the Focus report, from the Central Bank, pointing to an increase of 7.27% in 2021, with a Selic rate of 7.50% in December.
This Wednesday, however, teams from institutions such as Bank of America and XP have already raised expectations for inflation due to the more expensive electricity bill (read more here), which could translate into new increases in projections for the cycle of monetary tightening underway by the Central Bank.
Meanwhile, the political scenario also raises concerns for investors, given the climate of tension between the Executive and the Judiciary and the constant threats of rupture by President Jair Bolsonaro (no party), in a context still of gradual economic recovery, in Covid-19 pandemic function.
The best investment recommendations for 30 days free: meet the Expert Pass