XP recommends partial profit-taking on Brazilian public bonds

XP analysts Lucas Genoso and Maria Luisa Paolantoni recommend that investors partially realize profits from the recent rally in Brazilian public bonds. This surge followed the first round of elections, which triggered a significant drop in interest rates and a subsequent rise in the value of long-term inflation-linked bonds.

The firm suggests a gradual migration of capital toward high-grade, tax-exempt private credit, such as incentivized debentures, rather than exiting sovereign risk entirely or concentrating heavily in credit. While the appreciation of Treasury bonds has been substantial—with some inflation-linked assets rising between 11% and 17% recently—XP notes that the potential for further rate decreases remains, depending on upcoming economic debates.

This market movement is driven by mark-to-market adjustments, where falling market interest rates increase the price of existing bonds. The strategy involves balancing liquidity, risk, and net returns as investors weigh the benefits of current gains against the potential for continued interest rate declines.