Radar Perene / Archive / episode

Fixed income in disguise loses its charm — Aug. 2013, the Selic at 9%

◦ Written under index methodology v1 (in effect until 15 Jul 2026). The current series is v2 — readings quoted here may differ from those shown today. See the methodology.

Episode

The extreme

Some assets listed on the exchange are not, at heart, equities. Real estate funds and power utilities pay a predictable stream and behave more like a fixed-income bond than like a bet on growth — they are worth gold when interest rates are on the floor, and they lose the disguise when rates climb. That month the Selic crossed from 8% to 9% a year, and the disguise fell away: the money abandoned both dividend proxies at once and ran back to raw materials. In numbers: real estate funds plunged from the middle of the pack to well behind it in relative strength, utilities sank even deeper, while commodities took the lead. The intermarket leapt from 46.57 to 67.82.

What happened next

Interest rates did not stop rising — 10% in November, 10.75% in February, 11% the following August — and the punishment of the income proxies did not follow a straight line. In November 2013 the IFIX was still in the tail, but the utilities had already returned to the positive side of relative strength: the block broke apart. In February 2014 the real estate funds reclaimed almost all the lost ground at once, from the back of the pack to near the center of relative strength — the return of the poor relatives, too cheap to stay where they were. A year later, in August 2014, appetite came back strong (Perene Risk from 23.7 to 68.1), but it picked the banks — stretched in relative strength to a point the archive almost never records — and sank the bricks again, well behind the pack.

What did not happen

The reading treated IFIX and Utilities as a single thing — fixed income in disguise — and they were not. Within three months the paths split: the utilities resurfaced while the bricks stayed in the basement. Nor was it a flight: the Perene Risk Index barely moved, from 62.4 to 62.2, steady in neutral. The capital simply changed chairs within the same room. And the punishment was not final — the IFIX that sank in August reappeared in February before sinking again. The floor of one indicator was not the floor of the story.

The honest verdict

The mechanism was right: rising interest rates make money more expensive and strip the shine from a predictable dividend. The error was one of homogeneity — assuming two income proxies would move together when what united them was the label, not the destination. The engine itself was modest about it: matured at six months, the August 2013 reading returned -10.8% and was classified as insufficient, on a base of only five comparable episodes. Naming the mechanism is easy; timing it is not.

Continue reading: The return of the poor relatives · The single bet on banks · The Selic and interest rates →

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Characters: Rates (Selic)