Long bonds start to reward investors
April is coming to an end as another month that rewarded fixed income, but not the simplest floating-rate bonds linked to the Selic (Brazil’s key interest rate) or the CDI rate (the benchmark rate for interbank loans). Inflation-linked government bonds with maturities of more than five years led the way, with gains of 3.3% (measured by the IMA-B 5+, an index that represents a basket of securities) over the month and an appreciation of more than 7% over the year. With a projected IPCA of 2.7% this year to date, this is a substantial real gain.Little by little, investors are starting to anticipate interest rate cuts, making longer and riskier securities appreciate. If this trend is confirmed, the stock market is expected to react to an economic recovery as well. Brazil’s benchmark stock index Ibovespa gained 1% in the month through the 27th, but has lost 6.2% since January.Whether in Brazil or abroad, the main recommendation for investors is fixed income, said Ronaldo Patah, chief strategist at UBS Wealth Management. With expectations that the U.S. Federal Reserve (Fed) will raise rates again next week and then pause, and that Brazil’s Selic will take a few more months to fall, there is no reason to rotate portfolios toward riskier assets, such as the stock market. UBS believes that the Monetary Policy Committee (Copom) will not be able to lower the key rate before September."We are talking about five months. With the CDI at 13.75%, if you try to anticipate the upward movement [of stocks] and it doesn’t come, the investor loses almost 6% of interest. It’s difficult. We prefer to wait and see what it’s going to be, if reforms will be truly positive, if the tax overhaul will get off the drawing board after decades," Mr. Patah said. "There may be an opportunity by the end of the year, but it’s too early to be optimistic. There’s a lot of political uncertainty. We don’t even know how Congress will behave because they haven’t voted on anything yet."The UBS strategist maintains the mantra of his report at the beginning of the year under the title "Keep calm and fixed income II," repeating some recommendations that already made sense in 2022. "It’s still very topical and has worked well so far," Mr. Patah said, citing fixed-income benchmarks (IRF-M, IMA-B) above the CDI, while those more linked to equity risk such as the Ibovespa, Ifix (of real estate funds) and even hedge funds (IHFA) are underperforming.In the stock market, despite attractive...
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