On March 18, 2026, Brazil's Central Bank cut the Selic (Brazil's benchmark interest rate) from 15% to 14.75% — the first cut since May 2024. The April 2026 Focus Report projects the rate will reach 12.25% per year by December 2026. That trajectory may look modest on paper, but it fundamentally changes the math for fixed-income investors.
The question showing up constantly in investor communities is straightforward: with rates falling, which is the better bet — fixed-rate, floating-rate, or IPCA+? The answer depends on three variables that need to be understood before any decision is made: how each bond type behaves in a falling-rate cycle, the concept of mark-to-market pricing, and the time horizon you actually have available.
The Three Types of Fixed Income: How Each One Works
Floating-rate: tracks the Selic, no surprises
The most common floating-rate instrument in the Brazilian market is the Tesouro Selic (Selic Treasury bond), which pays the accumulated variation of the benchmark rate. Simple, liquid, and free from mark-to-market risk — it can be sold at any time without meaningful loss of value.
Today, with the Selic at 14.75%, the Tesouro Selic delivers a nominal return close to 14.55% per year (net of the B3 custody fee of 0.20% per year). After discounting the current IPCA (Brazil's official inflation index) of 4.71% — which sits above the Central Bank's ceiling target of 4.50% — the real return is still meaningful, around 9.4% per year before income tax.
The structural problem with floating-rate bonds in a cutting cycle is straightforward: as the Central Bank lowers the Selic, the bond's yield automatically drops. Someone investing today earns 14.75% while the rate stays at that level — but only 12.25% once it reaches the Focus projection by year-end. Capital has no protection against the cycle.
Fixed-rate: lock in today's rate, regardless of what comes next
The Tesouro Prefixado (fixed-rate Treasury bond) pays a rate set at the moment of purchase. If you buy a fixed-rate bond yielding 13.50% per year and the Selic falls to 12.25%, you keep receiving 13.50% — even if you don't hold the bond to maturity.
This is where mark-to-market pricing comes in: the price of any fixed-rate bond in the secondary market moves inversely to prevailing interest rates. If you bought a fixed-rate bond at 13.50% and rates drop to 11%, your bond's value rises, because it now pays more than the market. That generates capital gains before maturity.
XP Investimentos and Itaú BBA — two of the country's largest research houses — explicitly recommend the Tesouro Prefixado as a strategy for the current scenario, precisely on this logic: lock in a high rate today, with additional upside if the cutting cycle turns out more aggressive than projected.
The risk runs in the opposite direction: if inflation surprises to the upside and the Copom (Brazil's monetary policy committee) is forced to pause or reverse the cuts, the bond's market value falls. For that reason, fixed-rate bonds only make sense for investors who believe in the downward rate trajectory and, ideally, are prepared to hold to maturity if necessary.
The Tesouro Prefixado 2029, currently available on Tesouro Direto (Brazil's treasury direct platform), locks in the prevailing rate and is the most-recommended maturity for capturing the current cycle without excessive duration exposure.
IPCA+: guaranteed real return, regardless of inflation
The Tesouro IPCA+ pays the variation of the IPCA plus a fixed real rate. Currently, the Tesouro IPCA+ 2035 is being traded at a real yield of approximately 7.06% per year above inflation.
That is rare. In historical context, Brazil's real interest rate has rarely sustained levels above 6% for extended periods. Anyone who buys the IPCA+ 2035 today and holds to maturity will earn that real return regardless of whether the IPCA averages 4%, 6%, or 8% over the next nine years.
Like fixed-rate bonds, IPCA+ bonds are also subject to mark-to-market: if market rates rise after purchase, the bond's value falls. If they fall — as projected for 2026 — the bond's value rises, generating additional capital gains. The so-called "golden window" for IPCA+ is precisely this: buy at a high real yield, lock it in for the long run, and potentially capture market appreciation in the short term.
Mark-to-Market vs. Held-to-Maturity (Curve) Pricing
This is the concept that confuses most fixed-income investors, and it is worth explaining precisely.
Held-to-maturity pricing (also called "curve pricing") means the bond's value grows linearly in line with the contracted rate, with no daily fluctuation. This is what happens with the Tesouro Selic and with private credit instruments you hold to maturity: the balance rises every day, predictably.
Mark-to-market is the price at which the bond would be sold today in the secondary market. For fixed-rate and IPCA+ bonds, this value fluctuates daily based on market expectations for future rates. On a day when the market "opens the rate" (projects higher future rates), the bond price falls. When the market "closes the rate" (projects lower future rates), the price rises.
For the long-term investor, mark-to-market is not a risk — it is an opportunity. Investors who do not need to sell before maturity will not feel this effect. Those who do sell early may exit with a gain or a loss depending on the moment.
The practical rule: floating-rate for liquidity and emergency reserves; fixed-rate and IPCA+ for investors with a defined horizon who believe in the falling-rate cycle.
Simulation: R$100,000 in Each Bond Type
To make the comparison concrete, here is what happens to R$100,000 invested in each bond type over 3 years under three scenarios:
- Accelerated cuts: Selic drops to 11% by Dec/2026 (beyond the Focus projection)
- Focus baseline: Selic reaches 12.25% by Dec/2026, stabilizes around 11.5% in 2027
- Pause in cuts: Copom halts the cycle with the Selic at 13.5%, inflation applies pressure
Tesouro Selic 2029 (floating-rate)
| Scenario | Estimated nominal return over 3 years | Note |
|---|---|---|
| Accelerated cuts | ~38% | Yields less as the Selic falls |
| Focus (baseline) | ~42% | Captures part of the high rate, then the decline |
| Pause in cuts | ~46% | If the Selic stays at 13.5%, it earns more |
The Tesouro Selic benefits from a pause — but is the worst of the three in an accelerated cutting scenario. Estimated net return after 15% income tax (above 720 days): between R$132,000 and R$139,000 at the end of 3 years.
Tesouro Prefixado 2029
| Scenario | Estimated nominal return over 3 years | Note |
|---|---|---|
| Accelerated cuts | ~48% + capital gains | Favorable mark-to-market |
| Focus (baseline) | ~45% | Rate locked in; outperforms floating |
| Pause in cuts | ~40% with early loss risk | Unfavorable mark-to-market |
With a fixed rate around 13.50% per year, the bond delivers ~45% over 3 years if held to maturity. After 15% income tax: approximately R$138,000. In the accelerated cutting scenario, a favorable mark-to-market may bring that result forward.
Tesouro IPCA+ 2035
| Scenario | Estimated real return over 3 years | Note |
|---|---|---|
| Accelerated cuts | IPCA + 7.06% + capital gains | Dual source of return |
| Focus (baseline) | IPCA + 7.06% | Preserves purchasing power |
| Pause + high inflation | IPCA + 7.06% protects | High inflation is neutralized |
The IPCA+ 2035 is the only one of the three that offers structural protection against any inflation scenario. If average IPCA is 5% per year and the real rate is 7.06%, the nominal return is ~12.06% per year. Over 3 years on R$100,000, that results in approximately R$140,000 net after 15% income tax — but since maturity is in 2035, anyone who needs to exit early is exposed to mark-to-market.
CDB, LCI, and LCA: How They Compare
Tesouro Direto bonds are not the only options on the fixed-income shelf. CDB (Certificado de Depósito Bancário, bank deposit certificates), LCI (Letra de Crédito Imobiliário, real estate credit notes), and LCA (Letra de Crédito do Agronegócio, agribusiness credit notes) are issued by banks and follow similar logic, with important differences:
| Product | Typical indexing | Income tax | FGC coverage | Note |
|---|---|---|---|---|
| CDB floating 2 years | 111% CDI | Regressive table (15% above 720 days) | Up to R$250,000 | Comparable to Tesouro Selic, with credit risk |
| LCA 2 years | 92% CDI | Exempt | Up to R$250,000 | Tied to agribusiness |
| LCI 2 years | 90% CDI | Exempt | Up to R$250,000 | Tied to real estate sector |
| CDB fixed-rate 3 years | 13.5% p.a. | 15% above 720 days | Up to R$250,000 | Alternative to Tesouro Prefixado |
| Tesouro Selic | Selic | 15% above 720 days | Brazilian National Treasury guarantee | True daily liquidity |
The income-tax exemption of credit notes has real value: an LCA yielding 92% of CDI is effectively equivalent to a CDB at ~108% CDI for maturities above 720 days. But you need to run the math product by product — there is no universal rule.
A CDB at 111% CDI with a 5-year term is a relevant alternative to the Tesouro IPCA+ 2035 for investors who believe the Selic will fall gradually. The difference: the CDB delivers 111% of the Selic (which keeps falling), while the IPCA+ locks in the real return. In a controlled-inflation environment, the CDB may come out ahead. In a scenario of persistent inflation above 5%, the IPCA+ offers better protection.
Strategy by Goal and Time Horizon
| Goal | Horizon | Recommended product | Rationale |
|---|---|---|---|
| Emergency reserve | Indefinite | Tesouro Selic | Daily liquidity, no mark-to-market |
| Short-term goal | Up to 1 year | CDB with daily liquidity or LCA | Lower tax, tax-exempt in the case of LCA |
| Planned purchase | 1 to 3 years | LCI/LCA or short-term fixed-rate | Locked rate, defined redemption date |
| Wealth preservation | 5 years or more | IPCA+ | Guaranteed real yield, inflation protection |
| Bet on the cutting cycle | 2 to 4 years | Fixed-rate (Tesouro Prefixado 2029) | Locks in high rate, potential capital gains |
| Diversification | Mixed | Selic + IPCA+ + fixed-rate | Covers different scenarios |
The Regressive Income Tax Table: Never Ignore This Calculation
All taxable instruments — Tesouro Direto, CDB, fixed-income funds — follow the regressive income tax schedule:
| Investment term | Income tax rate |
|---|---|
| Up to 180 days | 22.5% |
| 181 to 360 days | 20% |
| 361 to 720 days | 17.5% |
| Above 720 days | 15% |
This has a direct impact on product selection: a 6-month CDB investment loses 22.5% of earnings to income tax. The same investment in a tax-exempt LCA loses nothing. For terms under 2 years, the tax exemption on credit notes is especially valuable.
IOF (a financial transaction tax) applies in a regressive way during the first 30 days (from 96% on day one down to 0% on day thirty). After 30 days, only income tax applies.
Note: Provisional Measure 1.303/2025 proposes taxing LCI and LCA at 5% and unifying the fixed-income income tax rate at a flat 17.5%. The proposal still depends on Congressional approval. When planning long-term investments, account for this regulatory risk.
Fixed Income as a Foundation, Not a Ceiling
Brazilian fixed income today offers a historically rare combination: a Selic rate of 14.75%, a real yield of approximately 7% per year above IPCA, and instruments that allow locking in that return for years. For most investors, this foundation is essential.
At Royal Binary, Sidnei Oliveira structures portfolio management around the idea that fixed income is not synonymous with complacency — it is the foundation that allows calculated risk-taking in other assets. Managed trading, when built on top of a solid fixed-income base, adds a layer of diversification without compromising the security of the core portfolio.
The most rational strategy for the current Selic cutting environment combines all three types:
- Tesouro Selic for the emergency reserve (unrestricted liquidity)
- Prefixado 2029 to lock in the current rate and potentially capture capital gains
- IPCA+ 2035 to guarantee real returns over the long run, regardless of where inflation goes
There is no perfect allocation — only the allocation that makes sense for your time horizon, your tolerance for short-term volatility, and the scenario you consider most likely.
Royal Binary is a collective investment platform managed by professional traders. This content is exclusively educational and does not constitute investment advice. Past performance does not guarantee future results. Consult a certified investment advisor before making financial decisions.