In my opinion, yes, following the BCCH’s rate decisions (175 basis points) at its most recent meetings, bringing the Monetary Policy Rate to 9.5%. The question is: What is expected for the next meeting?

The issuing agency, through its president, Rosanna Costa, has already warned that “the fact that we started with 100 basis points (in the case of the first meeting) is not indicative of the magnitude of future moves, as they could be smaller.” This suggests that future decisions will be made based on how the macroeconomic environment evolves. 

Last week, however, the September CPI was released, surprising the market with a monthly increase of 0.70%. This sparked interest in short-term deposits, which could give time deposits a new lease on life. We know that the TPM is expected to continue falling because it remains at levels consistent with restrictive monetary policy, although the cut could be smaller (50–75 basis points) than expected. In this scenario, opportunities could arise given the potential need for market participants seeking financing, who—in order to meet their obligations—offer deposits at attractive rates that are favorable to demand.

While this applies to everyone in the market, higher-risk issuers are more likely to fail to meet these daily obligations, whether due to cash shortfalls or liquidity indicators. That is why issuers with a second-tier rating—close to 100 basis points—are trading at a higher premium on swaps with maturities close to 1 year, in an effort to relieve pressure on short-term maturities under 3 months, which is where one should naturally be financing.

The fact is that there is a negative slope on the yield curve below 1Y, and, furthermore, there appears to be little wiggle room within the portfolio limits for the various institutions. Compounding this is an illiquid market where the dollar continues to appreciate, pushing inflation higher. On the demand side, the lack of long-term issuances (over 1Y) increases appetite for them, as investors seek spreads over swaps on issuers with adequate creditworthiness—which, when converted to yield, offers a more than decent risk-return profile. In simple terms, good expected returns from issuers with adequate credit quality. And best of all: without being exposed to duration risk when investing in longer-term instruments, which has caused more than a few headaches in recent weeks.

Víctor Valenzuela

Fixed-Income Trader / Domestic Financial Intermediation Instruments