Rising interest rates and high inflation rates make the economic survival of households with low mortgages and low incomes difficult. But they also have a positive effect on fixed income products such as Treasury bills, government bonds and obligations, whose yields have been at their highest levels for almost a decade. In the last Treasury auction, the yield on 10-year bonds rose above 4%, while that on bills reached yields above 3.5%.
However, as the National Valres Market Commission (CNMV) warned a few months ago, investing in public debt and funds specialized in this type of asset entails “specific risks”, especially if the investment is withdrawn before it matures. the term. But this does not mean that the best option is to leave all the money in the checking account.
In a context like the current one, “you have to bet on placements that have a performance that at least allows you to maintain purchasing power,” comments Josep Soler, executive advisor of the Spanish Association of Financial Advisors and Planners (EFPA). And he maintains that public debt "is currently a good placement" for conservative savers.
Unlike what happens with variable income assets, in fixed income the investor knows in advance the profitability that will be achieved in a given period, which is why it is considered more suitable for a conservative profile. And within this type of investment products, adds Soler, public debt "is the safest" as long as it is backed by countries that have a high rating, as is the case of Spain.
Despite this, when investing in public debt, the maturity of the product must be taken into account. Thus, the longer the term, the more chance there is of losing money. "If you buy 10-year Treasury bonds, the chances that the interest rate will vary and, therefore, also the price of the bond, are much higher than if you buy Treasury bills [with a term of 3, 6, 9 and 12 months]", gives the financial advisor as an example. Therefore, if a bond is purchased today at 4% and rates rise, the asset will fall in price and the investor will have to pay for the discount if they sell it early.
Another factor that can work against it is inflation, which is impossible to predict in the long term. "So we can't be sure what kind of real yield the bonds will have, because if inflation ends up being higher than the interest at which the bond is being bought [now at 4%], the real yield will end up being negative ", explains Soler. Therefore, the more conservative the investor profile, the more appropriate a short-term investment horizon. "A 10-year debt has more risk than a one-year bill," she asserts.
For those investors with the capacity to assume greater risk in exchange for guaranteeing a certain interest rate for a long period, it may be interesting to acquire 10-year debt. The reason is that if there is a change in trend and rates begin to fall and, therefore, also the yield offered by public debt, the investor who has acquired a 10-year bond at 4% "will ensure this profitability." until the deadline expires. On the other hand, whoever has purchased a one-year Treasury bill at 3.8%, if they want to continue investing in this asset once the term has expired, will obtain a lower return in the following auctions. "And this will surely happen because it is estimated that inflation and rates will be lower," says Soler.
So the best time to acquire long-term obligations will come when the interest they offer reaches maximums. The problem is guessing when it will happen. According to Víctor Alvargonzález, independent financial advisor and founder of Nextep Finance, we will have to wait for the interest rate on 10-year bonds in the United States to stop rising, which is close to 5% for the first time since 2007. And he predicts: "It may that we are close."
He also argues that the rise in the interest rate on European debt has less to do with the situation in Europe, where inflation is going down and the economic situation is unflattering, and more to do with the competition posed by North American public debt. "Meanwhile, it is better to focus on shorter terms by betting on products such as Treasury bills or bonds of no more than three years, because, although [these assets] may have losses in value, they are less sensitive to the evolution of interest rates ”.
However, the advisor considers that it may be more beneficial to opt for fixed income funds that invest in public debt with a term of two years - which should not be confused with banks' target profitability or maturity funds. However, he recognizes that we will have to pay attention to the commission, which should not be higher than 0.20%. The advantage of this product over the purchase of bills, bonds and obligations is fiscal, since when purchasing a bond directly, the coupons - which represent the nominal interest - must be taxed in the year in which they are received. On the other hand, if the money is invested in a fund, the coupons "accumulate" and do not have to be taxed until the invested money is redeemed, which can also be transferred to another fund without being accountable to the Treasury.
