By Brazil Stock Guide – Brazil’s stock exchange operator B3 SA (B3SA3) introduced on Thursday (March 26) a new benchmark tied to government bonds linked to the country’s benchmark interest rate, aiming to expand tools available to fixed-income investors.
The Índice Tesouro Selic Low Turnover B3 (ISELIC Low T B3) tracks the average performance of Letras Financeiras do Tesouro (LFTs), floating-rate government securities indexed to Brazil’s Selic rate. The indicator is designed to provide a standardized reference for asset managers and institutional investors allocating capital to these instruments.
LFTs, widely known as Tesouro Selic bonds, are commonly used for cash management and conservative investment strategies due to their low risk, high liquidity and returns aligned with monetary policy. They also play a key role in public debt financing and in the transmission of interest rate decisions across the financial system.
“With the Índice Tesouro Selic Low Turnover B3, we expand the range of benchmarks for the fixed-income market by introducing an indicator focused on LFTs with clear eligibility criteria and low portfolio turnover. This enhances transparency for investors, managers and issuers when assessing strategies linked to the benchmark interest rate,” said Hênio Scheidt, product manager at B3.
Methodology and eligibility
The index is structured as a total return benchmark, capturing both price variation and cash flows over time. Its theoretical portfolio includes only LFTs issued by Brazil’s National Treasury.
Eligible securities must meet minimum requirements for maturity and liquidity. Bonds must have at least two months to maturity, a remaining term of 12 months or more, and an average daily trading volume above a threshold defined based on recent market data.
Securities that no longer meet these criteria or experience a significant drop in liquidity are removed in subsequent rebalancing cycles.
“The combination of maturity and liquidity criteria was designed to ensure the index represents a more stable LFT portfolio with strong tradability in the secondary market, reducing the need for frequent asset turnover and aligning with the low turnover concept,” Scheidt said.
Weighting and rebalancing
Constituents are weighted based on two factors: outstanding volume and average daily trading volume in the secondary market, each accounting for 50% of the allocation.
Rebalancing takes place quarterly, on the fifth business day of January, April, July and October, when weights are recalculated using updated market data.
“The weighting methodology seeks to balance the economic relevance of each bond, measured by its outstanding amount, with its effective liquidity. As a result, the ISELIC Low T B3 reflects both the size and tradability of different LFT issuances,” Scheidt added.