Conservative assets finally beat inflation at 1.9%

Conservative assets finally beat inflation at 1.9%

The way is paved for this investor profile. The returns offered by the products in which they usually invest are the highest in the last 8 years after discounting the effect of inflation.

One of the positive effects of the tightening of the central banks’ monetary policy is that the most conservative assets once again offer income, after years in which they have been little or nil. But this would not have been enough if inflation continued unbridled, as it was a year ago, when it exceeded 10% and the only alternative to avoid losing purchasing power was to invest in the stock market. Luckily for the most conservative, the scenario has changed. In addition to once again having alternatives with which to make your money profitable, its returns are also sufficient to beat inflation that moderated to 1.9% in June. Thanks to this, the real yield obtained by investing in Bills, fixed income or in the best offers in deposits, is the highest in at least the last eight years.

In the most recent auction of 12-month bills, which is usually the preferred term for the most cautious investors due to its similarity to the deposit, the Treasury paid a return of 3.804%, not seen since the peripheral debt crisis that hit Europe in 2012, and the average interest rate offered in all debt issues of this type this year is already at 3.26%. But that is the gross return, so to speak, the nominal one. To arrive at the real, inflation must be discounted, which stands at 1.9%, which leaves the final return at 1.36%, the highest in the last nine years (see chart).

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It is a paradigm shift compared to previous years, since between 2016 and 2022 investors came to pay the State for buying a Letter. At the beginning of this period the situation was not as bloody as at the end because inflation was low or non-existent. But already in 2021, after the pandemic, prices shot up 6.5%, while the average interest rate offered by the Treasury on one-year Bills was -0.55%. The world upside down. This, in practice, implied that someone who bought a one-year bill assumed a loss of 7% in 2021 and 4.95% in 2022, due to the impact of inflation.

A turning point occurred in the summer of 2022, with the first interest rate hike by the ECB. As a result of it, and with those that have come after, there was an unprecedented readjustment in the prices of all assets and pushed up their returns, including that of Letters, which returned to positive territory, after six in negative, with an average interest rate of 0.75%. The problem is that inflation was still at 5.7%.

But the rate hike cycle is already closer to ending than continuing, and the question that arises is whether the profitability of the Bills will climb much more from current levels. If the script that discounts the market is fulfilled, which contemplates two additional rate increases this year to start lowering them in June 2024, experts believe that its ceiling is approaching, although in the next auctions it could still rise a little more, up to the around 4%. This same week, the agency has been forced to improve its offer, with a marginal interest rate of 3.53% for three-month paper and 3.810% for nine months, which is a new all-time high.

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Encouraged by the higher yields of the Letters, the percentage in the hands of individuals has shot up from 0.02% to 18.38% in one year, although the conservative’s fetish asset continues to be the deposit. Despite the fact that the big banks continue without remunerating them, the entities have increased their collection of liabilities by 42% since the ECB began to raise rates. According to the Bank of Spain, the average interest paid in Spain for new money to families amounted to 1.65% in May, while the price of money in Europe reaches 4% and the Euribor trades above that barrier. . This means that the real profitability of deposits in general continues to be negative, but not that of the best offers in the hands of online banking, fintech or subsidiaries of foreign entities.

Through them, you can access one-year deposits with returns of 3.55%, which is the highest yield that an individual can opt for today with a one-year fixed term contractable directly with an entity, in this case via BFF (formerly Banca Farmafactoring), which depends on the Italian Deposit Guarantee Fund (FGD). On the other hand, the most profitable deposit subject to the Spanish FGD belongs to Pibank, which gives 3.34%.

Fixed income plays its role again

Fixed income is usually included in the range of conservative assets, despite the fact that recent crises have shown that its price can fluctuate with the same virulence as that of a share. But for years it has not offered income either because it is subject to the 0% rate regime. The number of negative-yielding bonds soared to unprecedented levels in the summer of 2019, at the height of the US-China trade war. Then it reached over 17 trillion dollars.

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Since last summer their returns began to rise. So much so that the yield to maturity of a global fixed income index stands at 3.84%, and the expected return for this type of debt in 2024 is already close to 4%, a unique opportunity in almost fifteen years.

However, it cannot be ruled out that volatility will pick up in the second half of the year. “Currently there are several scenarios about how things could evolve in the future, so investors should be alert,” they say in Schroders. “If the economy takes its time to slow down, inflation could rise again. This would force central banks to raise interest rates further. So far, the economy has remained surprisingly strong, barring some cracks in the sector banking, so that’s definitely something to watch. That’s why it’s important to be flexible and be able to change your mind based on what we see in the market and what the latest data tells us,” they explain.

Regarding the future of inflation in Spain in the coming months, from Accuracy they do not see “structural reasons that explain high inflation in the medium term, if additional sources of uncertainty do not appear, the return to controlled prices and low rates will occur soon, sooner than many anticipate.


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