In Brazil’s world of high interest rates, fixed income has become a synonym for safety. With the CDI benchmark in double digits, retail investors have grown used to predictable returns and capital guarantees. The financial industry, however, has found a shortcut: packaging risky derivatives into structures sold as “boosted fixed income.” Thus multiplied the risk-based COEs — products that promise protection but deliver volatility.
The pitch is seductive. Who could refuse the idea of earning more without taking more risk? The marketing talks of “capital protection” and “international exposure.” It just omits the crucial detail: that protection is conditional — valid only as long as the underlying asset, whether a stock, a corporate bond, or an index, does not collapse. When it does, some of these products trigger automatic barriers: they liquidate at the bottom and return pennies.
Legally, there is no wrongdoing. The risk sits in the fine print. The problem is economic. The structure transfers all exposure to the client while the bank hedges itself with offsetting derivatives. Risk is privatized; profit is socialized.
The capital-protected versions of these notes have their place — especially those that preserve the principal. But the market has learned to sell the exception as the rule. And trust, in financial markets, has no guarantee fund.
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