CDI was the only refuge in October: what this reveals

October delivered Brazilian investors a lesson that the market insists on repeating: in times of extreme uncertainty, those positioned in post-fixed investments sleep soundly. Those who bet on any other asset class did not.

The CDI rose by 1.02% in the month and was, in practice, the only relevant investment that closed in the green. The dollar, which increased by 5.20% in the commercial quotation, was only a good deal for those with currency exposure. For the average investor in reais, the scenario was one of widespread value destruction.

The Ibovespa fell by 9.75%. Long public bonds melted down. Real estate funds dropped. Even Bitcoin gave way. The month starkly exposed what happens when the market abruptly reprices fiscal risk.

Why October was so destructive for Brazilian assets

The dynamics of the month were marked by a violent reversal of expectations. The result of the first round of elections fueled, among some financial agents, the prospect of a government change and boosted local assets in the early weeks.

With the re-election of President Lula, the mood changed radically. Uncertainty about the conduct of economic policy in the coming years caused a significant widening in future interest rates. The dollar skyrocketed, and the perception of fiscal risk deteriorated rapidly.

The result was a repricing that affected practically all classes of domestic assets. The stock market recorded its worst week in history right after the second round, with losses of 18% in just five trading sessions. Companies more sensitive to the domestic scenario, such as retailers and construction firms, were the most penalized.

This movement was not restricted to variable income. The widening of future interest rates severely contaminated fixed income, as we explained in our coverage of finance and the market.

Mark-to-market: the silent villain of long bonds

The negative highlight of the month was the Treasury IPCA+ 2050, which fell by 6.59%. It may seem counterintuitive: a fixed income bond losing almost 7% in 30 days. But this is exactly how mark-to-market works, and October was a perfect case study.

When the rates demanded by the market rise, the price of already issued bonds falls to adjust to the new reality. The longer the duration of the paper, the greater the sensitivity to this variation. That’s why bonds maturing in 2050 suffer much more than those maturing in 2028.

The Treasury Prefix with Semiannual Interest 2037 fell by 5.54%. The Prefix 2032 dropped by 5.12%. The IPCA+ 2040 lost 4.74%. Even the shortest maturity among the inflation-indexed bonds, the IPCA+ 2032, closed in the red, with a decline of 0.96%.

For those who understand the mechanics of mark-to-market, the result is not surprising. But for the individual investor who bought long bonds believing in "safe fixed income," the shock was real.

The CDI as an anchor: what post-fixed investments teach about risk management

The CDI yielded 1.02% in October. The Treasury Selic 2031 delivered 0.92%. The savings account, 0.67%. These are modest but positive returns. In a month where almost everything lost value, the difference between gaining 1% and losing 6% is staggering in terms of wealth preservation.

This is not to argue that the investor should be 100% in post-fixed investments. The question is different. Months like October show why the liquidity and safety portion of a portfolio needs to exist. It is what allows the investor not to be forced to sell risky assets at the worst moment.

The IFIX, the index of real estate funds, fell by 2.84% during the period. Bitcoin dropped by 3.11%. Even asset classes theoretically uncorrelated with the Brazilian fiscal scenario felt the impact. The flight to quality was selective and restricted to pure post-fixed investments.

Dollar at 5.20%: protection or warning sign

The US dollar was the best-performing absolute asset of the month, rising by 5.20% in the spot market and 4.65% by the PTAX quotation. For investors with international exposure, the movement acted as a natural hedge against the deterioration of domestic assets.

But the rise of the dollar is, above all, a thermometer of confidence. When the real depreciates to this extent in a single month, the market is pricing risk. Fiscal risk, political risk, economic management risk. As we analyzed in our coverage of the political and economic developments of the period, the speed of currency depreciation revealed the degree of uncertainty among agents.

The question that remains for the coming months is whether this risk premium is here to stay or if there will be an accommodation as the new government signals its priorities in economic policy.

What October reveals about allocation in times of stress

The investment ranking of the month is not just a performance table. It is an X-ray of how different asset classes behave when country risk rises abruptly.

Three lessons stand out. First: long bonds are risky assets in scenarios of interest rate widening, regardless of being "fixed income." Second: currency diversification has real value, not just theoretical. Third: the post-fixed portion of a portfolio is not excessive conservatism. It is basic risk management.

For the investor looking at the scenario ahead, the question is not whether October was bad. It was. The relevant question is: was the portfolio prepared for a month like this? If the answer is no, the adjustment needs to happen before the next shock, not after.

This content is informative and educational and does not constitute an investment recommendation. Past performance is not a guarantee of future results.