March 24, 1985. Santiago. The National Stadium was completely full, but filled with the old bleachers rather than the folding seats we have now, meaning 80,000 people, and after that, no one was counting anymore. Qualifiers (or Eliminators, take your pick) for the 1986 World Cup in Mexico: Chile hosted Uruguay. It was a tense, rough game, with strong legs, players without crazy haircuts, tattoos up to their necks, or millions of followers on Instagram. Twenty-eight minutes into the first half, Hugo Rubio scored 1-0 and broke the local fans' hearts. But the game remained tense, the lead slim, and the opponent dangerous.

Fifty-two minutes in. In an attempt to break through, the scorer of the first goal commits a foul almost on the goal line in favor of the home team. Jorge Aravena takes the ball and places 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 worked on during the week. The reason? There is no angle on the goal, and it is almost impossible to distinguish between the near and far posts. In addition, the Uruguayan wall was 4 meters away, "if that," so logic would most likely prevail. But this column would not have been written if logic had prevailed, as Mortero strikes the ball hard, high, with a lot of spin, and the ball nestles into the net of Rodriguez, the Uruguayan goalkeeper. The impossible goal was born.

Perhaps without the same mystique, without the same passion, and certainly without the same talent, I have tried to understand what is happening with the rate structure in Chile. There are surely many explanations, all converging on the uncertainty of the constitutional process and the "break" in the market at the long end of the curve caused by pension fund withdrawals, but I have not seen anyone able to assign significance to these events or even predict whether everything is already priced in or whether we are still halfway through an even greater correction. I have a model that has worked very well in "normal" situations (or rather, before October 19, 2019), and I still think it is the correct approach, but one of its components needs to be re-estimated, and therein lies my problem: the situation is so unprecedented and changing that any statistical exercise would give me biased projections, with no idea what sign that bias even has.

But I looked for the angle. Because while I was searching for something perfect, I had forgotten that the days were passing and my clients needed answers. The audience was nervous, throwing things onto the court, so we had to resolve the issue quickly. I latched onto a study by Damián Romero, who estimated the behavior of the component I needed, called the term premium, although for an earlier period (2003-2014). Although several things are different now, I think the exercise serves to at least give us an order of magnitude of what is happening at the moment. If we take the period 2011-2020 as a reference, rates are cheap, overly punished, and should fall by at least 100 basis points at the longest end. However, that reference seems illusory at the moment, both due to macro conditions and liquidity issues. If we take Romero's work and use his estimates for the period 2010-2014, nominal rates would be "at their price," although the longest end in UF would be relatively cheap. And what if we take the subprime crisis as a reference? The market was certainly stressed 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 almost 150-200 bp. However, 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 same study we cited, has a huge influence on local term premiums. What does the current situation most resemble? I leave that assessment to the reader.

Yes, it is possible that rather than shooting at the goal, I am attempting to pass the ball back or kick it into the corner. However, I already mentioned that I do not possess the talent of El Mortero. And even though I cannot make an "impossible shot" (for the moment), I can look for the angle from another side to ultimately try to win the game.

Nathan Pincheira

Chief Economist at Fynsa