What happened to EUA interest rates?
The Treasuries of 30 years exceeded 5.30% per year, the highest level since 2002 — 24 years ago. The move reflects mistrust of the international market in the public accounts of the United States, which began to charge higher premium to lend to the US government.
According to the analysis of the XP signed by the economists Caio Megale, Rodolfo Margato, Tiago Sbardelotto, Alexandre Maluf, Basiliki Litvac and Luiza Pinese, US public bonds began to charge more expensive precisely because of this distrust in the country's accounts. When the market demands higher interest rates to fund a government, the message is clear: the perceived risk has risen.
What is the Treasury of 30 years and why does it matter?
Treasury is the name of the bonds of the public debt of the United States — the American equivalent to our Direct Treasury. The 30 years is the longest in the family: whoever buys this paper lends money to the government of EUA for three decades in exchange for a fixed interest rate. As the safest asset in the world, its rate functions as a kind of "rule" for virtually the entire global financial market.
When long Treasury interest rises, it changes the reference price of money on the entire planet. Financing, mortgages, corporate debts and the capital cost of companies are calculated on a higher basis. For the Brazilian investor, this is not a distant detail: the Treasury of 30 years influences the exchange rate, the appetite for risk and the price of various assets that are within the portfolio of those who invest in Brazil.
The golden rule of fixed income: When interest rises, the price of securities already issued drops. — and vice versa. A paper that paid 4% is worth less when the market starts offering 5.30% in new securities. The longer the maturity, the stronger this effect, because the discount applies over decades of future payments.
Why is 5.30% a relevant level?
The concrete fact here is independent of who analyzed it: the Treasury of 30 years is at the highest level in 24 years. To scale, it is necessary to remember that much of the last decade has coexisted with U.S. interest rates near zero. Seeing the long tip of the curve exceeding 5.30% means that the market is demanding a much higher premium to carry term risk — and, according to the reading of XP, to cope with fiscal uncertainty in the United States.
It is a level of interest that redresses the world. Risk assets compete with a sovereign bond that has paid more, and the simple fact that there is a more generous “risk-free” alternative changes the calculation of every global investor.
How does this affect the portfolio of the Brazilian investor?
The movement in the Long Treasuries crosses the border and reaches asset classes that many Brazilians already carry. Below, the four most direct broadcast channels.
TLT — the long-term Treasury ETF
The TLT is an exchange-traded fund (ETF) that brings together the long-term American Treasuries. It functions as a mirror of the mechanics we describe: When interest rates of 30 years rise, the price of TLT falls; when interest rates fall, the price of TLT rises.. It is the so-called inverse relationship between rate and price, amplified by the long duration of the roles that the fund carries.
For those who follow the TLT: this is why it fell while interest rates rose. The ETF did not "break" — it is doing exactly what fixed income math predicts. On the other side of the coin, whoever mounts a position with interest rates near a historical top buys papers that embed a high rate; if at some future time interest rates fall back, the same mechanism that brought down the price works in favor of recovery.
The TLT represents today's TLT 10% da alocação de referência From the Rico aos Poucos. It is a position that suffers in the short term with the rise in interest rates, but whose thesis depends on the opposite movement there in front.
Paper FIIs — the link by the exchange and Selic.
The paper FIIs are real estate funds that invest in CRIs (Certificates of Real Estate Receivables), debt papers mainly indexed to IPCA or CDI. The connection with American interest is indirect, but real: High interest rates on the EUA tend to pressure the exchange rate. — the dollar strengthens and the real tends to weaken.
Pressure exchange rate is one of the variables that help keep Selic at a high level in Brazil, because the Central Bank needs high interest rates to contain imported inflation and defend the currency. E Selic High directly benefits the paper FIIs: the higher the CDI and the inflation measured by the IPCA, the higher the returns that these funds distribute, since their portfolios are indexed to these indicators.
Dollar — the most direct vector.
The dollar is the dollar. 25% da alocação de referência From the Rico aos Poucos, the greatest weight of the portfolio. High American interest rates are one of the classic fuels of strengthening the dollar in the world: when the safest title on the planet pays more, global capital migrates to the EUA in search of that return, valuing the American currency against the other currencies.
For the Brazilian investor exposed to the dollar, the US interest environment at the top of 24 years plays in favor of this thesis of strengthening the currency — which is exactly the rational behind the relevant weight of this class in the allocation.
IBOV — Brazilian stock exchange under relative pressure
The last channel is appetite for risk. When long Treasury pays more than 5.30%, risky assets around the world — including the Brazilian stock exchange — become relatively less attractive. Why accept the volatility of emerging stocks if the world's safest stock went on to offer a fat return? This reasoning, made by global managers, tends to drain resources from risk markets such as IBOV.
It is worth reinforcing: this article E-mail report market movement and analysis of XPXX, made by Caio Megale, Rodolfo Margato and team. The impacts described for TLT, paper FIIs, dollar IBOV and IBOV are the known mechanics of transmission of these interest rates — they do not constitute a recommendation to buy or sell. Each investor should evaluate his own strategy and horizon.
Summary of What Matters
O fato: the interest of the Treasuries of 30 years exceeded 5.30% per year, the highest level since 2002. According to the analysis of XP, the movement reflects the mistrust of the market in the public accounts of EUA.
For the Brazilian wallet: The TLT tends to suffer in the price in the short term (reverse interest/price ratio), but holds potential recovery if interest rates fall; the pressurized exchange rate favors the dollar and helps to sustain the high Selic, which benefits paper FIIs; and the appetite for reduced global risk weighs relatively on the IBOV. The level of interest is the fact — the scenario reading is from XP.
