XP Advises Fixed-Income Shift to IPCA and Pre-Fixed Bonds as Selic Rate Easing Cycle Continues

XP Inc. is directing fixed-income investors to execute a pivot in their portfolios this month, shifting exposure away from purely post-fixed, CDI-linked assets toward a diversified allocation of inflation-linked and intermediate pre-fixed bonds. The recommendation comes as the Central Bank of Brazil’s (BCB) Monetary Policy Committee (Copom) is widely expected to cut the benchmark Selic rate by 25 basis points this week, from the current 14.25% to 14.00%. The projected move, which would mark the fourth consecutive rate reduction, signals that the era of exceptionally high, "safe" returns from simple CDI-tracking products is nearing its end, making strategic re-allocation crucial for capturing value from the shifting rate cycle.

The mechanism behind XP’s strategy is rooted in the mathematics of a declining interest rate environment. As the Selic rate falls, the daily return of post-fixed products like the Tesouro Selic and many Certificate of Deposits (CDBs) — which are indexed to the CDI, a rate tightly coupled with the Selic — diminishes proportionally. The window of opportunity now lies in locking in the still-high interest rates available on pre-fixed bonds, while also protecting the portfolio’s real value. Diversification into intermediate pre-fixed government or private titles allows investors to secure the high current yield for the duration of the bond, a benefit that will dissipate once the Copom formally moves rates lower.

Crucially, the strategy advocates for a significant position in IPCA-indexed titles, such as Tesouro IPCA+, to maintain the real purchasing power of capital. Although the central bank's tightening cycle has brought inflation down, the 12-month IPCA-15 still sits at 4.52%, with the 2026 inflation forecast hovering around 5.03%—figures that justify a hedge. However, XP cautions against excessive duration risk, recommending intermediate-term bonds over long-dated paper due to persistent macroeconomic volatility and political uncertainty, a factor that continues to weigh on the broader market as the iShares MSCI Brazil ETF (EWZ) trades down 0.93% and the Ibovespa (IBOV) edges down 0.11%.

The immediate focus for investors remains the outcome of the Copom’s two-day meeting, scheduled to conclude on August 5th. While a 25-basis-point cut to 14.00% is priced in, the most material information will come from the accompanying policy statement. The market will scrutinize the central bank’s forward guidance for clues on the pace and magnitude of future cuts through the remainder of the year and into 2027, determining how quickly fixed-income returns will continue to compress and solidifying the tactical advantage of locking in today’s yields.