Tesouro Direto is a program by the National Treasury of Brazil, developed in partnership with B3 – the Brazilian Stock Exchange – to sell federal government bonds to individual investors, entirely online. The program was launched in 2002 during the administration of President Fernando Henrique Cardoso, with the aim of democratizing access to government bonds, allowing investments starting from approximately R$ 30.00.
The bonds offered through the program are National Treasury bonds or Federal Public Debt (FPD) securities, and they play a significant role for both the market and the government. These bonds are fiscal balancing tools that help raise funds from society, primarily aimed at financing public expenses.
Governments frequently rely on borrowed resources to finance their activities, whether in emerging countries or more developed economies. Historically, government bonds have been crucial for funding expenses related to wars, military operations, scientific research, and infrastructure. Examples of countries with notable public debts – for various reasons – include Japan, the United States, Greece, and Argentina.
Beyond the historical importance of public debts for states, debt securities also serve as important savings and investment instruments. The government is generally considered the best borrower to lend money to, as it is almost certain that the principal amount plus interest will be repaid upon maturity. This is because the government can print more money to fulfill its debt obligations, which other borrowers cannot do. Lending to the government is seen as the safest investment available because, theoretically, the entire country would have to collapse for the debt to go unpaid, which is highly unlikely.
Governments have defaulted before, and each country carries its own specific risk and risk premium. Nevertheless, many financial institutions hold a portion of their reserves in government bonds. Additionally, in cases of severe economic crisis, taxes may be levied on properties such as real estate, or large sums of money may be printed, potentially eroding the currency’s value through inflationary tax. It is virtually impossible to eliminate the risk of public debt; one can only minimize exposure to it: strategies such as investing in other countries can reduce this risk, but then the investor is exposed to the risks associated with the economy and public debt of the other country.
In the context of globalized economies, the significant integration between national economies creates systemic or non-diversifiable risks. Commercial interactions between nations, companies, and individuals affect reserves and financial flows. Brazil, for example, is one of the countries that heavily finances the U.S. public debt. At first glance, it may seem illogical for Brazil, which borrows money, to lend to the U.S. Treasury, especially when considering that interest rates paid by the Brazilian government are usually higher than those paid by the U.S. government, effectively causing a loss for Brazil’s treasury. However, these reserves are very useful in avoiding international market volatility, generating confidence for agents who depend on currency conversion for trade.
The international reserves managed by Brazil’s Central Bank act as a kind of “insurance” that guarantees the fulfillment of foreign obligations. The reserves are usually held in U.S. dollars, as it is the most widely used currency for international trade, and U.S. Treasury bonds, backed by the U.S. government, are considered some of the safest in the world, partly due to the size and strength of the American economy.
Returning to Tesouro Direto, its features of security, accessibility, and flexibility have made it a very successful program. It is an excellent investment alternative, offering bonds with different types of returns (fixed-rate, linked to inflation variations, or linked to the basic interest rate of the economy), various maturities, and different payment schedules. This wide range of options makes it easier to find bonds that align with each investor’s goals.
The bonds may be fixed-rate or linked to the Selic rate – the economy’s basic interest rate – or the IPCA rate – Brazil’s official inflation rate – and have different maturities, allowing for relatively short-term or long-term investments. Some bonds pay semiannual interest, meaning there is no need to wait for the bond’s maturity or sell it before the maturity date to start enjoying the benefits of the investment.
In addition to the bonds mentioned above, there are currently two very specific types of bonds: Tesouro Renda+ and Tesouro Educa+. Tesouro Renda+ is a bond that pays monthly income starting from the conversion date, which occurs 240 months before maturity. This means the bond can serve as a retirement supplement, helping investors retire with quality. Tesouro Educa+ is also a bond that pays monthly income from the conversion date, which occurs 60 months before maturity. This bond aims to help families invest in their children’s educational future, functioning as a form of savings. Both bonds have a hybrid return, with one part fixed and the other linked to inflation.
To better manage the risks of Federal Public Debt and choose the most suitable bonds and maturities for your goals, considering macroeconomic conditions, the need for resources, and other characteristics of your financial planning, it is important to seek the assistance of a specialized and independent investment professional, such as a Securities Consultant. Contact me and schedule a consultation.
