On the left, Eduardo Arraes (BTG). On the right, Bruno Stein (Galapagos)
Brazil now has 71 fixed-income ETFs within a universe of more than 200 ETFs available for trading. Opening the panel, Thalita Forne noted that the category is only slightly more than seven years old but has experienced strong growth, particularly in the most recent period.
Expansion has included government bonds, corporate debentures and infrastructure debt, following the broader development of Brazil’s fixed-income market. Eduardo Arraes said the industry should move toward products segmented by risk level, sector, issuer type and tax treatment. Potential categories include high-yield ETFs, infrastructure debenture funds and portfolios focused on specific areas of the economy.
ETFs operate as an access technology
Bruno Stein described the ETF as a technology for accessing asset classes. According to the BlackRock representative, product development should begin with evidence of actual demand rather than an attempt to replicate every product already available in the US market.
Stein said the operational and tax framework for Brazilian fixed-income ETFs became fully aligned in 2024. From that point, the funds began offering an efficient alternative for taxable fixed-income exposure, with potential operational and cost advantages over purchasing certain bonds directly or investing through more expensive traditional funds.
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Stein divided fixed-income ETFs into two groups. The first provides efficient access to already-liquid exposures, such as government bonds. The second includes strategies that can transform less transparent markets, particularly private credit, by creating recurring pricing and trading references.
Duration enables more precise exposure
When discussing interest-rate risk, Thalita Forne asked how duration and yield-curve positioning could guide ETF selection. Bruno Stein explained that mark-to-market pricing allows investors to purchase precise exposures and use different ETFs according to their allocation or trading objectives.
Traditional fixed-income index families are beginning to be complemented by more specialized benchmarks, including constant-duration indexes for fixed-rate and inflation-linked government bonds. A similar development could occur in private credit, with portfolios separated by origin, issuer size, credit quality and rating.
Stein said this specialization could expand institutional use of ETFs. Active managers could use the funds to adjust exposure to different sections of the yield curve without having to trade every underlying security separately or build derivatives positions.
Credit spreads must be compared with risk
Eduardo Arraes explained that investors should not evaluate a credit ETF solely by the additional return offered by its portfolio. The analysis should also consider historical changes in average spreads, issuer leverage and the credit ratings of the underlying securities.
The BTG Pactual Asset representative highlighted a distinctive feature of Brazil’s credit market. When interest rates rise, companies may face greater difficulty generating cash, which increases credit risk. At the same time, investors tend to allocate more money to fixed-income funds, increasing demand for debt securities and pushing spreads lower.
This combination can create a situation in which additional compensation declines precisely as issuer risk increases. According to Arraes, tracking spreads, leverage and ratings over time helps investors assess whether the portfolio’s expected return adequately compensates for its risks.
Private credit broadens access but complicates replication
Eduardo Arraes cited DEB11 as a representation of the more liquid segment of Brazil’s corporate debenture market. However, the limited trading frequency of some securities prevents exact index replication, requiring the portfolio to use similar assets and make small adjustments.
Despite this challenge, ETFs can offer an important advantage over holding less-liquid bonds directly. Arraes noted that investors holding CRIs, CRAs, high-yield debentures or debt issued by smaller companies may struggle to sell their positions during periods of market stress. Through an ETF, the market maker provides quotes and allows the exposure to be traded on the exchange.
Bruno Stein added that credit ETFs can create an additional layer of liquidity. Trading the ETF share establishes a pricing reference for a proportional interest in the portfolio, supporting price discovery in a market where many individual bonds trade infrequently.
Education should support the next stage
Bruno Stein said the more established products have already found demand and now require stronger education and distribution. The main challenge is explaining the available exposures, their risks and their role in portfolio construction.
Thalita Forne highlighted B3’s investments in liquidity, education, distribution and transparency. One of the initiatives mentioned during the panel was a dedicated ETF certification for financial advisers, created in 2025.
The next stage should combine continued growth in government-bond ETFs with the gradual development of private-credit products. Progress will depend on the liquidity of the underlying securities, greater portfolio segmentation and the ability of investors and advisers to evaluate duration, spreads, leverage and credit risk.
