Low Inflation Will Melt NTN-B Returns: Serra

Why Are NTN-B Returns Under Pressure?

Bruno Serra, former director of the Banco Central do Brasil and current manager of the Itaú Janeiro fund, has issued a pointed warning for investors holding inflation-linked government bonds known as NTN-Bs. His core argument: if inflation stays near zero, the real returns on these instruments will shrink dramatically.

What Is the IPCA Outlook He Described?

Serra projects the IPCA — Brazil's official consumer price index — to average close to zero over the coming months. That would be a sharp reversal from the elevated inflation environment that made NTN-Bs so attractive to investors in recent years.

How Does Low Inflation Hurt NTN-B Holders?

NTN-Bs (Notas do Tesouro Nacional série B) pay a fixed real interest rate plus the accumulated IPCA. When inflation collapses toward zero, the IPCA component of the return virtually disappears, leaving investors with only the real-rate portion of their yield. Serra's warning suggests that total nominal returns could be far lower than many portfolios currently assume.

What Happens to Interest Rates Next Year?

Beyond the inflation call, Serra also expects Brazil's benchmark interest rate (Selic) to decline in 2026. His reasoning: a strong contraction in economic activity will force the central bank to ease monetary policy. A lower Selic typically puts downward pressure on the fixed real-rate component offered on new bond issuances, compressing yields further.

What Should Investors Consider?

For expats, foreign investors and individuals holding Tesouro IPCA+ bonds through Brazilian brokerage accounts, Serra's scenario is a reminder to stress-test portfolios against a low-inflation, falling-rate environment. Diversification across asset classes and maturities becomes more relevant when a single macro factor — inflation — underpins the bulk of expected returns.