Nowadays, it is common to see in different media, dedicated to a greater or lesser extent to investments, alternatives to the low yield that term deposits (DAP), the most fashionable asset for some time now, are beginning to offer. Along these lines, although the degree of attractiveness of the "0.50 a month" of DAPs is at the discretion of each individual, it is worth analyzing the option of lengthening the curve. In this regard, it seems to me relevant to highlight 3 key points:

1. Positive slope or "term premium" on the short end of the curve: in a normal world and what is explained in any finance textbook, is that a longer investment horizon implies, per se, a higher expected return. However, in the recent period of rate hikes by various Central Banks, this did not hold true. On the contrary, the incentive was to stay short with the once beloved time deposits. From August 2022 until last March, the difference between the BTU30 and the BTU26 was negative or flat; that is, the BTU30 had lower or equal rates than the BTU26. Currently, the difference is +14bps (BTU30 3.02%, BTU26 2.88%).
2. Negative slope on the long side: put simply, the BTU30 is the highest point of the curve. In longer terms, for example, the BTU50 has an IRR of 2.65%.
3. Higher spread or "credit risk premium": in AAA, the best credit rating available, premiums in duration 6 hover around 80bps (rate approx 3.82%), which contrasts sharply with the 60bps offered by shorter AAA papers. Similar story for AA corporates, which in the short end are around 100bps spread, while in the medium end they are close to 120bps (approx. 4.22%).

In conclusion, investing in the duration 6 zone has increased its attractiveness significantly compared to the last 2 years. This bet can be materialized either directly through the base (BTU30) or through corporates and banks in this duration. The decision is up to each individual, evaluating the spreads and liquidity of each type of instrument. Personally, I assign greater value to the high liquidity offered by the best ratings, so my option is to invest in AAA instruments or the aforementioned government bond.

Pablo Gallegos, Assistant Manager, Money Desk