Are Fixed-Rate Bonds Worth It Compared to the CDI?
Not as much as many investors think. A study by XP examining fixed-rate government bonds issued since 2006 revealed that while these securities outperformed the CDI in more than half of the observed holding periods, the historical return advantage in favor of fixed-rate bonds is very small.
This conclusion serves as a warning for investors drawn to seemingly high fixed rates. The data shows that, in practice, investors take on considerable price volatility and purchasing power risk to achieve a return that ultimately ends up very close to the standard post-fixed return of the CDI.
What Does the XP Study Reveal About Fixed-Rate Performance?
The XP analysis examined the history of fixed-rate government bond issuances starting in 2006, looking at different investment windows to determine whether locking in an interest rate actually justified the risk over time.
The data indicates that fixed-rate bonds managed to beat the CDI in more than half of the periods analyzed. However, the key takeaway highlighted by the analysis is that this margin of victory was extremely narrow. This means that while investors who chose fixed rates finished with a nominally larger portfolio most of the time, the financial difference compared to a simple investment tied to the CDI was nearly negligible.
This historical pattern suggests that market pricing for future interest rates is highly efficient, leaving little room for everyday investors to consistently generate extraordinary gains simply by locking in rates.
Why Is the Return Difference So Narrow?
To understand why fixed-rate bond returns tend to converge with the CDI over the long term, it is helpful to look at how these rates are formed in financial markets. A fixed-rate bond's yield is not set at random; it reflects the market consensus on the path of the Selic, Brazil's benchmark interest rate, over the bond's maturity, plus a risk premium.
This risk premium is the financial compensation investors demand for giving up liquidity and accepting the uncertainty of locking in their returns. Because the market adjusts these expectations daily based on inflation data, economic activity, and fiscal policy, the rates offered on newly issued bonds already price in nearly all future projections.
If the economy performs very close to what the market consensus anticipated, fixed-rate and post-fixed (CDI) bonds will finish with very similar performances. Only extreme deviations—such as an interest rate drop much steeper than anticipated or an unexpected surge in inflation—trigger large return distortions between the two asset classes.
Watch out for mark-to-market risk: If you need to redeem a fixed-rate bond before its agreed maturity date, you will be subject to that day's market prices. If interest rates rise after your purchase, the value of your bond will drop, which can result in real financial losses if you sell early.
What Are the Real Risks of Locking in an Interest Rate?
Investors who choose fixed-rate bonds give up two fundamental fixed-income protections: protection against inflation and protection against rising benchmark interest rates.
The first major risk is inflation. By locking in a nominal rate, investors take on the risk that inflation will rise faster than expected during the investment period. If that happens, the real return—the gain above inflation—will be severely eroded and could even turn negative, meaning a loss of real purchasing power.
The second risk is opportunity cost. If Copom, the central bank's rate-setting committee, is forced to raise the Selic rate to contain inflationary pressures or fiscal imbalances, post-fixed investments tied to the CDI will yield more. Fixed-rate investors, however, remain stuck at the lower rate they locked in previously, watching other assets appreciate without being able to benefit from them.
How Should Investors Approach These Findings?
The XP study serves as an important benchmark for portfolio construction, demystifying the idea that high fixed rates are always an excellent deal. For retail investors, a cautious approach should prevail.
Because the historical margin of victory over the CDI is narrow and the associated risks are high, fixed-rate bonds should not form the core of a fixed-income portfolio. That role of safety and liquidity should continue to be handled by post-fixed assets (such as Tesouro Selic or daily-liquidity CDs) and inflation-linked bonds (such as Tesouro IPCA+), which help preserve purchasing power over the long term.
Allocations to fixed-rate bonds can be made tactically and moderately, preferably when investors are certain they can hold the bond to maturity—eliminating the risk of mark-to-market losses—or when there is a clear signal that the central bank's rate-cutting cycle will be deeper than what the financial market is currently pricing in.
The Rico aos Poucos Verdict
Locking in rates with fixed-rate bonds requires conviction and the stomach to weather mark-to-market volatility. History shows that the risk premium paid by these securities relative to the CDI is tight and may not compensate for the loss of flexibility and inflation exposure for most retail investors. When in doubt, post-fixed and IPCA+-linked bonds remain the safest choices for the core of your portfolio.
