In a recent video on its channel, Seu Dinheiro recommended prioritizing fixed income in Brazil while looking abroad for equity opportunities. The rationale: with government spending outpacing revenue, interest rates are expected to stay elevated for longer. Around the same time, the Central Bank of Brazil paused its cycle of Selic rate cuts, and the market pushed up interest rate projections through 2028.
Why Prioritize Fixed Income in Brazil?
It comes down to the government's fiscal position. According to the video's summary, the recommendation is to seek equity opportunities outside the country and prioritize fixed income domestically, because a deficit-running government keeps market expectations for high interest rates in place for longer. The video also notes that a potential depreciation of the Brazilian real does not mean the currency will lose all its value. We will return to that point below, as currency risk is often what frightens investors considering full dollarization.
The logic is straightforward: when the government needs to borrow heavily and the market doubts its spending discipline, lenders demand a higher risk premium. Investors who buy government bonds or certificates of deposit (CDBs) capture that premium. Meanwhile, the Brazilian stock market takes a double hit—high interest rates raise corporate borrowing costs and make fixed income a tough competitor to beat.
This thesis is not just talk; recent market movements have provided concrete numbers to back it up.
What Has Changed Since the Election to Support This Thesis?
Three things, all pointing in the same direction. First was the Copom decision: the Monetary Policy Committee voted this Wednesday (4) to keep the Selic rate at 13.75% a year, following five consecutive 0.25-percentage-point cuts. For context, interest rates remained at 15% a year for ten straight months, between June 2025 and March 2026. According to an analysis by Nomad, the committee removed language regarding the total magnitude of the easing cycle, which may signal that rate cuts have come to an end, at least for now.
Second is the exchange rate. The U.S. dollar stood at R$ 4.96 on the Friday prior to the election, according to Remessa Online, and closed up 0.37% this Friday (6) at R$ 5.51—marking the first session of the year to close above R$ 5.50. On the first trading session following the runoff election, the currency recorded its largest daily percentage gain since January 1999.
Third is Tesouro Direto, the retail government-bond platform where individual investors feel the thesis directly in their wallets. The table shows how real yields have swung since the first round of voting:
| Bond | Oct 2 (Pre-First Round) | Oct 5 (Post-First Round) | Oct 26 (Post-Runoff) | Nov 3 (Pre-Copom Eve) |
|---|---|---|---|---|
| Tesouro IPCA+ 2032 | IPCA + 7.66% | IPCA + 7.01% | IPCA + 7.80% | IPCA + 8.03% |
| Tesouro IPCA+ 2050 | IPCA + 7.06% | IPCA + 6.32% | IPCA + 7.03% | IPCA + 7.44% |
These figures come from Seu Dinheiro, which reported that the Tesouro IPCA+ 2032 fell from a real yield of 7.66% to 7.01% after the first round; from InfoMoney, covering the October 26 close; and from InvestNews, which noted that on November 3 the Tesouro IPCA+ 2032 moved from IPCA + 7.89% to IPCA + 8.03%. The optimism surrounding the first round reversed course in three weeks. Shorter maturities now pay higher yields than they did before the election. But a high yield today does not guarantee it will remain high. This is where the "for longer" part of the thesis comes in.
How Long Will Interest Rates Stay High?
Longer than the market anticipated two weeks ago. The first Focus Bulletin following the election, released by the Central Bank on November 3, sharply raised its Selic rate projections for the next three years. The chart compares this survey with the previous week's figures:
According to InfoMoney, the 2027 projection rose from 11.75% to 12.50% a year, while the 2028 estimate climbed from 10.00% to 11.00%. Inflation expectations also ticked higher, with the IPCA forecast for 2027 rising from 4.34% to 4.76%. Based on our math, a current Selic rate of 13.75% against this projected IPCA yields a real interest rate of approximately 8.6% a year (1.1375 ÷ 1.0476 − 1). Few countries offer that kind of return. It is precisely this premium that Seu Dinheiro suggests capturing.
Fiscal concerns behind this trend have already surfaced at other institutions: the downgrade of Brazilian assets by Citigroup and BCA Research followed a similar line of reasoning. The market is still waiting for the concrete signals listed by UBS across its three fiscal tests for the government to reassure investors. That brings us to the question causing the most panic.
If the Real Depreciates, Do I Lose Everything?
No, and that is precisely what the Seu Dinheiro video makes a point of clarifying. Depreciation means the real buys fewer U.S. dollars, not that it disappears. Looking at the math helps put things in perspective: the dollar has risen roughly 10% since the eve of the runoff. One year of Tesouro Selic yielding 13.75%, net of the 17.5% income tax for maturities between six months and one year, returns about 11.3% after taxes (our estimate: 13.75% × 0.825). In other words, the worst currency shock in decades roughly equals one year of post-fixed income returns in reais.
You can also compare this with U.S. interest rates. With the 10-year Treasury near the levels seen when U.S. 10-year yields pulled back and relieved market pressure, the dollar would need to appreciate by about 8% every single year for U.S. Treasuries to match the Selic rate (1.1375 ÷ 1.0509 − 1, our estimate, excluding taxes and price fluctuations). That can happen in a bad year. Over the long run, year after year, it is difficult to sustain. That is why the recommendation is not to swap everything into dollars: it is to keep a portion abroad in equities while letting the core of your portfolio earn Brazilian interest rates.
Moreover, the market is not projecting a freefall for the real: according to the Focus survey, the exchange rate projection for 2027 rose from R$ 5.15 to R$ 5.40, which remains below this Friday's quotation. What, then, changes in practice for each part of your portfolio?
Emergency reserves and cash: Tesouro Selic and daily-liquidity CDBs continue to generate strong returns, and the Copom pause delays any decline in those yields. Long-term investments: Medium-term Tesouro IPCA+ bonds are once again paying more than 8% above inflation—a level worth locking in only if you intend to hold until maturity. Real estate funds (FIIs): Brick-and-mortar funds compete with these real interest rates and tend to face pressure, while paper funds tied to the CDI and IPCA pass that premium along to monthly distributions. Equities: The recommendation shifts variable-income exposure abroad via ETFs and BDRs, which also provides currency diversification.
Where Could This Strategy Go Wrong?
In the pricing of long-term bonds, and on the fiscal front should the government surprise to the upside. The path to maturity involves considerable volatility: the day after the runoff, according to InfoMoney, the price of the Tesouro IPCA+ 2050 closed 12.6% lower than Friday's level, after dropping as much as 23.6% at the open. Investors who need to sell before maturity could take a loss. Signals from the Planalto presidential palace also matter: Minister Dario Durigan ruled out adopting the interest rate cap proposed by Lara Resende, averting a risk of heavy intervention. Meanwhile, upcoming discussions regarding the 2027 budget and mandatory minimum spending on health and education will show whether the fiscal deficit is as persistent as the thesis assumes.
- Real interest rates near 8.6% a year, based on Focus projections, rank among the highest in the world, and the Copom pause pushes back rate cuts.
- The Focus survey raised expected Selic rates for 2027 and 2028, meaning the "higher-for-longer" scenario is already priced into market forecasts, not just rhetoric.
- Allocating a portion of your stock portfolio overseas hedges against currency risk without betting your entire net worth on a declining real.
- Long-term bonds (Tesouro IPCA+ 2050, fixed-rate bonds) can suffer double-digit price drops in a single day, making them suitable only for investors who hold until maturity.
- If the government surprises with a successful fiscal adjustment, future interest rates will fall, and Brazilian equities are likely to rally faster than fixed income. Investors who completely exit local stocks risk missing out on that rebound.