06/30/2022.
Do inflation bonds protect against inflation?
Last year, in November, I received a call from a broker at an investment bank offering me securities linked to inflation as a form of protection against rising inflation .
But is it really that the securities traded by the treasury directly and corrected by the IPCA hold back inflation?
This article aims to find the answer to this question.
Contextualizing
In November of last year, inflation was already in double digits (10.74% pa), and there was an expectation that inflation would increase due to the fact that the whole world was reopening after the Covid restrictions . Much was said about advances in vaccinations, lack of semiconductors on the market, and high prices for commodities . Therefore, having an investment that was effective in combating inflation made perfect sense at the time.
Checking accumulated inflation
One of the first steps that I must take for our study is to verify the accumulated inflation from November of last year until the present moment. Searching the accumulated inflation data I found some information
Figure 1 - Graph of accumulated inflation. Source: G1
We can see that the expectation of an increase in inflation that we had at the beginning of November has come true.
Figure 2 - Inflation calculator. Source: IBGE
I used the IBGE website to calculate inflation for the period and found out that we had an inflation of 6.55% between November last year and May this year. However, as I write this article on June 30, 2022, I have to use an inflation estimate for the current month, given that the June inflation data will only be made available on July 10 by the IBGE .
Using a proprietary IPCA forecast system, I arrive at an inflation estimate for this month of June of 0.69%.
With that, I arrive at 7.2% inflation for the period from November 2021 to today, June 30, 2022.
Selection of titles
The direct treasury card normally offers 11 different securities, withdrawing one or another trading paper, depending on how close their maturity date is.
Figure 3 - Direct Treasure Card 6/30/2022 at 2:30 pm
Let's simulate a simultaneous investment in the IPCA+ bonds maturing in 2026, 2035, and 2045 and verify if they really provide some degree of protection against inflation for the period from November 2021 to June 2022.
Direct Treasury IPCA+ 2026
We are going to check the acquisition price of this paper and for that I will use the information from the treasury direct website.
We have that the investor would have disbursed R$ 2,862.02 on November 1, 2022. Now let's check how much this same security is worth today:
We have that it is currently worth approximately R$ 3,168.05. An appreciation of 10.69%.
Direct Treasury IPCA+ 2035
Let's check the acquisition price of the IPCA+ 2035.
The investor would have disbursed R$ 1,790.57 to acquire this title in November last year. Let's now check how much it is worth today.
Today, this title is worth approximately R$ 1,913.78. That is, an appreciation of 6.88%.
Direct Treasury IPCA+ 2045
Let's check the acquisition price of the IPCA+ 2045.
We have that the purchase price for this security is R$1,045.85 on November 1, 2021. Let's now check how much it is worth today:
Today, this security is worth R$1,081.51, an appreciation of 3.4% for the period considered.
Conclusion
Only one security offered some protection against inflation while the other two failed to protect the investor in the considered period despite being “inflation securities” .
Table of results obtained.
In November last year, the best decision we could have taken would have been the purchase of the shorter IPCA bond , so that at this very moment we are exchanging it for longer bonds that have higher rates (5.91%), see card in the figure 1.
In summary, if you receive a call from your investment manager offering you products that protect against inflation, be aware that there is a 66% probability that you are purchasing a product that does not actually protect against inflation in the short term , especially if you need to exit before the maturity date of the bond.
To think about
What investments are immune to inflation?