Investment Talks | 27 Mar 2023

International Fixed Income

International fixed income is interesting both for investors seeking passive income in dollars or other foreign currencies and for investors seeking long-term capital gain.

There are fixed-income assets abroad that pay periodic income (passive income) and assets that accumulate these earnings over time.

International fixed income helps protect assets from crisis events in Brazil and the Brazilian currency.

The level of interest in developed countries is lower than in Brazil. Thus, international fixed-income interest rates are generally lower than those paid in our country.

However, there are securities abroad that pay more than the CDI rate, and often the effect of exchange appreciation offsets the lower interest rate paid abroad.

The most common products in international fixed income are:

  • Certificates of Deposit (CDs) or similar investments issued by financial institutions and investment platforms

  • Securities issued by governments or companies with high credit quality (High Grade)

  • Securities issued by governments or companies with lower credit quality (High Yield)

  • Perpetual bonds issued by financial institutions and banks

  • Fixed income ETFs

  • Fixed-income mutual funds and hedge funds

An important point for Brazilians who invest in international fixed income is taxes and their consequences.

  • Assets issued in the US are subject to distributed interest withholding. The advantage is that the Brazilian customer does not have to pay the interest tax in Brazil in this case.

  • Assets issued in Europe are generally not subject to withholding on interest distributed. In this case, the customer who receives the interest must, until the following month, pay the tax due in Brazil through the carnê-leao.

  • The inconvenience here is that the customer, in addition to having to pay the tax, will have to use more reais in Brazil to maintain the investment (paying the tax in Brazil).

  • An alternative is to minimize the months in which interest is received or invest in bonds that do not pay these distributions frequently. That is, you can plan to minimize the problem.

How to invest in fixed income in dollars?

  • The easiest way is to use the Brazilian platforms that offer access to the product abroad: Avenue, Nomad, and C6, for example.

  • Another possibility is to use digital platforms from abroad that serve retail customers in general. The best-known alternative is Interactive Brokers.

  • For private banking customers, generally with investments above R$5 million, other Brazilian or foreign banks that serve Brazilians also offer access.

Stay tuned!

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