March 24, 1985. Santiago. The National Stadium was completely packed—but with the wooden benches that used to be there, not the folding seats we have now—meaning 80,000 people, and after that, nobody bothered to count anymore. Qualifiers (or “Eliminatorias,” take your pick) for the 1986 World Cup in Mexico: Chile hosted Uruguay. It was a tense, rough, physical match, featuring players without outlandish hairstyles, tattoos up to their necks, or millions of Instagram followers. Twenty-eight minutes into the first half, Hugo Rubio scored to make it 1-0, sending the home crowd into a frenzy. But the match remained tense—the lead was slim, and the opponent was extremely dangerous.

Minute fifty-two. In an attempt to break down the defense, the very same player who scored the first goal draws a foul almost right on the end line in favor of the home team. Jorge Aravena takes the ball and positions it less than a meter inside the field, in a play that ninety-nine times out of a hundred ends in a cross into the six-yard box or a pass back for a shot they’ve practiced all week. The reason? There’s no angle on the goal; you can barely tell the difference between the near post and the far post. Moreover, the Uruguayan wall was—4? meters away, “if that,” so logic would most likely have prevailed. But this column wouldn’t be written if logic had prevailed, since “El Mortero” struck the ball hard, high, and with plenty of spin, and it nestled into the net of Uruguayan goalkeeper Rodríguez. The impossible goal was born.

Perhaps without the same mystique, without the same passion, and certainly without the same talent, I’ve tried to understand what’s going on with the yield curve in Chile. Sure, there are many explanations, all pointing to the uncertainty surrounding the constitutional process and the “break” in the long end of the yield curve caused by withdrawals from pension funds, but I haven’t seen anyone able to assign specific impacts to these events or even predict whether everything is already priced in or if we’re still halfway through an even larger correction. I have a model that has worked very well in “normal” situations (or rather, before October 19, 2019), and I still believe it’s the right approach, but one of its components needs to be re-estimated, and that’s where my whole problem lies: the situation is so unprecedented and ever-changing that any statistical exercise would give me biased projections, with absolutely no idea of the direction of that bias.

But I found a way to approach it. Because while I was looking for something perfect, I’d forgotten that the days were passing by and my clients needed answers. The audience was getting restless, throwing things onto the court, so I had to come up with a solution quickly. I relied on a study by Damián Romero, who estimated the behavior of the component I needed—called the term premium—though for an earlier period (2003–2014). Although several things are different now, I think the exercise is useful for, at the very least, getting an order of magnitude sense of what’s happening right now. If we take the 2011–2020 period as a reference, rates are low—overly depressed—and should fall by at least 100 basis points at the longest end of the curve. However, that benchmark seems illusory for the moment, due to both macroeconomic conditions and liquidity issues. If we refer to Romero’s study and use his estimates for the 2010–2014 period, nominal rates would be “fairly priced,” although the longest-term segment in UF would be relatively cheap. And what if we take the subprime crisis as a reference? The market was certainly under stress then, but was it as stressed as it is now? Let’s see: If we incorporate those estimates and apply them to our model, rates would be expensive and still have room to rise by nearly 150–200 basis points. In any case, a word of caution: at that time, there was not only a component of local uncertainty but also international uncertainty, which—as shown in the very study we cited—has a huge influence on local term premiums. What does the current situation most closely resemble? I’ll leave that assessment to the reader.

Yeah, okay, it’s possible that rather than aiming for the goal, he’s trying to pass it back or kick it out for a corner. But I already said I didn’t have El Mortero’s talent. And even though I can’t make an “impossible shot” (for now), I can look for an angle from another direction to, in the end, also try to win the game.

Nathan Pincheira

Chief Economist at Fynsa