The Monetary Policy Committee (Copom) of the Central Bank is expected to announce on Wednesday (8) another cut in the Selic, and the market is betting on a reduction of 0.25 percentage points, compared to 0.50 points in the last meetings. But what should really be in investors’ eyes should be the way in which BC directors will vote: according to XP, depending on a possible lack of consensus, short-term fixed income could be affected in different ways.
According to XP, if the votes are divided between a 0.50 and 0.25 percentage point cutoff, which is the scenario projected by the house, the market could interpret the episode as a sign of noise in the conduct of monetary policy, which would be translated in a “slight increase” in short-term interest rates.
If this is confirmed, the rise in future interest rates should once again penalize fixed income securities linked to inflation that are already in investors’ portfolios, and which priced lower future rates. In practice, the securities would tend to lose value on the secondary market, making life difficult for the investor who intended to dispose of the position before maturity.
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This situation, considered atypical for the current cycle of interest cuts, has already been affecting the profitability of fixed-rate securities linked to inflation for months: anyone who bought these securities when the BC began to reduce the Selic rate in August should be forced to take investment until maturity so as not to lose money.
This scenario would throw cold water on investors who were encouraged by new data compiled by Itaú BBA, which showed relief in the situation of inflation bonds given the fall in rates last week.
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But all may not be lost: XP also considers a more benign scenario if the Copom signals its intention to continue cuts. In this case, says the house, it is possible that the interest curve will decline in the short term, a situation in which short securities could appreciate.
Regarding allocation, XP analysts assess that, given the expectation of higher interest rates for a longer period of time, even with the continuation of the cycle of cuts, the vision remains “constructive” for fixed income, with preference for linked bonds inflation (IPCA+), which “have offered high real interest returns”.
Taking into account the less favorable external scenario and an “increasing domestic fiscal risk”, XP went from a projection of three more cuts of 0.50 percentage points and a final one of 0.25 points, taking the Selic to 9% per year , to one that considers three consecutive reductions of 0.25 points, and maintaining interest rates at 10% until the end of 2025.
