It is well known how important it has become to have a natural hedge against the USD/CLP exchange rate due to the unprecedented volatility post social outbreak and pandemic. Precisely these facts - together with a coordinated increase in global interest rates - have more than boosted dollar yields for Chilean companies, both investment grade and high yield. Having exposure to this type of issuers well known by the market (Celulosa Arauco, Cencosud, Falabella, Entel, Telefónica, CCU, BCI, among others), and clearly depending on the duration, could have attractive entry points, attractive entry points could be achieved by yielding at maturity between 5.5%-7% annually.

We do not want to delve into particular names that are experiencing operational and financial earthquakes due to these same factors, but to focus on those issuers that enjoy solid balance sheets, stable cash flow generation, corporate governance and capital structures that put even the most cautious investor at ease.

To give a couple of examples on the table, a Celulosa Arauco bond (BBB- risk rating) at 2030 offers an annual nominal yield of 6.25%, implying an additional 220 basis points over the U.S. Treasury benchmark at that maturity. This absolute rate was exceeded on only two occasions in the last 5 years, the first at the worst moment of the pandemic and the second when central banks began to aggressively raise interest rates in 2022. Other examples where credit risk is limited: Entel (BBB-) at 2032 with a 2032 yield of 6.25% (225bps), Antofagasta Minerals maturing in 2032 (BBB) yielding 5.75% in foreign currency, BCI (A-) at 2031 delivering 5.5% (150bps) per annum.

Additionally, the market context leads us to believe that we will see drastic interest rate drops during the second part of the year, or at the beginning of next year. Therefore, by having exposure to these issuers, additional capital appreciation benefits would be achieved, in addition to the annual carry from the accrual of interest. Moreover, the local institutional environment has been calming down, the local institutional environment has been calming down, which has been a relief for investors with Chilean assets. And, finally, exposure to the dollar has become a much desired theme after witnessing unprecedented levels of peso depreciation.

Adolfo Erpel, Fixed Income Trader