Very short-term government bond rate linked to inflation exceeds 12% per year; worth it?

The movement in the rates offered by some public bonds caught the attention of investors in recent weeks. The remuneration of papers with close maturities has increased strongly – as is the case of NTN-Bs (inflation-linked securities) that mature in August 2022. On the afternoon of this Thursday (23), the rate found for the paper on some investment platforms was 12% per year, apart from the variation of the IPCA (Extended Consumer Price Index).

NTN-Bs maturing in 2022 are not available at Treasury Direct. In the government bond trading system, the shortest maturities for inflation bonds are from 2026 onwards. But they can be found on the trading desks or platforms of some brokerages.

Some factors contributed to the volatility of the yield curve and the NTN-B 2022 real rates (excluding the variation of inflation) from around 5% to more than 12% per year in a period of six months. In a report, the head of fixed income at XP, Camilla Dolle, highlights that the unfolding of the war in Ukraine and the new lockdowns in China, with its “zero Covid” policy, were added to the already high global inflation scenario.

“The IPCA, here in Brazil, reached 11.7% in the last 12 months ending in May and the CPI, the North American inflation index, reached 8.6% in the same period, the highest since 1981”, says Camilla in the document.

The current rate of NTN-B 2022 is much higher than that of other inflation papers available in Treasury Direct – there, the highest currently is that of Treasury IPCA + 2055 (NTN-B 2055), which makes semi-annual payments of interest and is around 5.90% per year.

The real remuneration of more than 12% draws the attention of investors. But considering that the NTN-B 2022 expires in August, only about 40 business days ahead, is the application worth it?

Analysts heard by InfoMoney suggest considering some elements in the analysis. Although the rate offered sounds very attractive, the main risk of the investment is exactly the profitability that the investor will be able to obtain.

“The investor will receive the fixed rate plus the IPCA, however, in proportion to the investment term”, says William Carnevalle De Vuono, risk coordinator at Ouro Preto Investimentos. “Therefore, the biggest risk in this application is that the fixed rate and inflation added together will be lower than the Selic in the same period”. In that case, the investor would no longer earn the same as he could in another floating-rate investment, explains Vuono.

Camilla, from XP, also considers that the so-called “opportunity cost” in relation to the Selic or the CDI rate (the main reference for fixed income investments) is one of the main risks of such a short-term government bond.

“We believe that in the two-month period between today and the maturity of the NTN-B 2022, the CDI should be 2%, equivalent to an annualized rate of 13.2%”, he writes in the report. “The negotiated rate for this security is currently IPCA plus 12% per year. If the annualized IPCA for the period is 1.2%, the NTN-B 2022 will yield exactly the same as the CDI”.

In practice, the final profitability that the investor would obtain with the NTN-B 2022 depends on the level that the IPCA will reach. And especially in the next two months, the behavior of the IPCA will be influenced by factors that go well beyond those that usually affect inflation.

One of them is the measures that the federal government has been proposing in recent weeks to lower fuel prices. This is the case, for example, of the complementary bill nº 18 (PLP 18/2022), which limits the ICMS rate on goods and services related to fuels, natural gas, electricity, communications and public transport to the floor of the state tax. (currently between 17% and 18%). PLP 18 has already been approved by the National Congress. Its entry into force depends only on the sanction of President Jair Bolsonaro (PL).

“These measures have a strong deflationary impact (that is, they reduce inflation), and may even make the IPCA for the period negative, which would make the profitability of the security analyzed lower than the CDI for the period”, says Camilla.

Looking at the fixed yield curve compared to the real yield for the NTN-B 2022 maturity, Daniel Onaga, a fixed income analyst at Eleven, calculates that the implied inflation in the bond is approximately 0.55%. “If inflation exceeds this level, investors will obtain a higher yield than the CDI”, he says. But, in practice, the additional gains would be small – especially for those who already have the money invested in another investment and would need to redeem the amounts to acquire the inflation papers.

It is also necessary to remember that the Income Tax rates for investments redeemed before six months are the highest in the regressive table, at 22.5%. “This eats up even more of the NTN-B 2022 return compared to an investment that had been made in a floating rate bond, for example,” says Onaga.

The analyst’s view is that it would not be necessary to “spend as much energy” to achieve a return similar to that of NTN-B 2022 with other investment alternatives. “On the other hand, the possible loss is also not so great”, he points out. It may make sense, according to him, for those who have money stopped in their account at the moment.

For Vuono, from Ouro Preto, the public bond in question is an appropriate investment for those looking to maintain the purchasing power of a financial reserve. “However, it is worth noting that taxation will be 22.50% on income, given the term invested”, he reinforces.

Camilla, from XP, also remembers the reinvestment risk, or the possibility that the investor may not be able to reinvest their resources in an application with conditions equal to or better than those of NTN-B 2022 after its maturity. “It is important to have the next step very well planned, that is, what will be done with the resource right after this investment”, she says. “You have to be sure about the opportunity, which can be punctual and unique, and understand that you won’t always be able to make several of these short shots over time”.