What is mark-to-market? How does it work in Tesouro Direto?
Understand what marking to market is and how it works
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If you intend to invest in Tesouro Direto or other fixed income securities, you probably have doubts about what marking to market is.
However, not all investors know what it means in practice and how it can impact their investments.
With that in mind, in today’s article, we’re going to talk more about the subject. Keep reading to understand better!
What is mark to market?
Marking to market consists of the daily updating of prices of fixed income or variable income securities.
The concept is based on financial mathematics and considers the fluctuation in supply and demand of assets, as well as the behavior of primary and secondary markets.
The markup, which varies both upwards and downwards, refers to the price at which an investment can be sold on a given date.
In short, mark-to-market tells you how much a security would be worth if it were bought or sold that day.
For whom invests in fixed income, It is essential to pay attention to this, as this is an important factor for investors who want to redeem a security before its maturity date.
On the maturity date, the investor receives the contracted return. This means that marking to market only makes a difference if you want to sell a fixed income security before maturity.
Marking to market has been used as a reference for updating the value of securities since 2002, by decision of the Central Bank of Brazil.
How does marking to market work?
Mark-to-market takes into account three main factors: economic context, demand for an asset and the value of new securities being issued.
The economic context refers to certain events in the market, such as inflation and Selic rate (basic interest rate of the economy), for example.
Political and foreign market events may also cause foreign investors to want to buy or sell national securities.
To help you understand better, let's give an example.
Imagine that you bought a public bond from Tesouro Direto with a return of 6% per year. Your investment was R$ 500.
In technical terms, this is the Unit Price (PU), that is, the price of the security at the time of investment.
However, you purchased this bond a long time ago and, after that, the Selic rate started to rise. In addition, new bonds were launched.
In this case, the security you purchased becomes less attractive and has less demand from investors. Therefore, it starts to be worth less on the market.
And this is where the concept of marking to market comes into play, readjusting the value of the public security that you acquired some time ago, but in this case, downwards.
However, it is important to remember that the opposite also happens. After all, if the Selic rate falls again, it is the new bonds that will present a less attractive return.
This way, the investment you made becomes more interesting for investors and therefore begins to appreciate in value.
How does marking to market work in Tesouro Direto?
To understand what this means, you first need to know what Tesouro Direto is.
Tesouro Direto is a National Treasury program, launched in 2002, through a partnership with B3, for the sale of federal public bonds.
Before that, only legal entities had access to these bonds. But now, Tesouro Direto is considered one of the most accessible investments.
In fact, with just over R$ 30, it is already possible to start investing in government bonds.
When you invest in a Treasury Direct bond, you are basically lending your money to the government. In return, you will receive a remuneration.
There are three types of government bonds for sale on Tesouro Direto:
- Prefixed: When investing in a fixed-rate bond, you know exactly how much you will receive, as long as you wait for the maturity date to arrive to make the redemption.
- Selic Treasury: As the name suggests, this security follows the variation of the Selic, the basic interest rate of the economy. Since the profitability of this security varies according to the basic interest rate, the Tesouro Selic is considered a post-fixed security.
• Treasury IPCA+: is a hybrid security. Part of its yield follows inflation, while the other part is fixed.
Marking to market in Tesouro Direto
For the profitability of the bonds to be paid in full, it is necessary to wait for the maturity date to arrive.
However, it is important to know that Treasury Direct bonds have daily liquidity. Therefore, you can request redemption before the deadline. And it is in this situation that marking to market becomes very relevant.
After all, it represents the calculation of the current value of an investment.
Therefore, you can request early withdrawal. However, in this case, you run the risk of withdrawing the investment at a loss or with a lower return.
The Selic Treasury can also be impacted by mark-to-market, although this usually occurs to a lesser extent. For this reason, it is the most sought-after title for those looking to build an emergency reserve.
Fixed-income securities and the Treasury IPCA are affected on a daily basis.
Therefore, monitoring the mark-to-market and analyzing all the characteristics of the investment you want to buy, such as maturity date and remuneration rules, is essential to minimize risks and make the most of opportunities.
Conclusion
Now you know what marking to market is – the daily update in the prices of fixed income securities.
In fact, this is one of the reasons why even the most conservative investors should be cautious when making a particular investment.
For example, if your goal is to create an emergency fund, it is not recommended to buy fixed-income or hybrid bonds (such as the Treasury IPCA). After all, these bonds are more suitable for those with medium and long-term goals.
After all, profitability can fluctuate, causing losses for those who request redemption before the due date.
