Local debt currently presents certain anomalies, which make us suspect an excessive yield of treasury bonds in the middle and long part of the UF curve. These "anomalies" are related to the tight spreads observed over the 5-10 year duration, where, to get an idea, AAA bonds have a very low yield.where, to get an idea, AAA paper trades at 60-65bps over the base, when at the beginning of the year it was close to 80bps. The same logic applies to longer maturities for subordinated bankers, the natural habitat of insurance companies, where "subordination" seems to have disappeared, with a compression also of 20bps in premiums. Without having mediated any event that has produced a generalized fall in credit risk, a natural explanation for the above phenomenon, we must look for other explanations.

In order not to over-complexize, we can resort to the always well-weighted law of supply and demand, looking specifically at the supply side. In this case, we have a greater supply of bases in the form of Treasury tenders, with a busy calendar that runs until September 26th of this year. Among other titles, there are BTU28, BTU30, BTU44, BTU50 and BTU55 on display. This undoubtedly contributes to a lower price (higher rate) for the base. Also on the supply side, we have seen a lower amount of bank placements, which has contributed to a compression of levels and consequent decrease in spreads. In any case, it is worth pausing to analyze this point and think about causality, beyond correlation. Which came first: the chicken or the egg? Do banks simply not want to place or is the environment not conducive to this? And if we assume the latter as an explanation, does the level of the base have anything to do with it? I am inclined to think so. When placing, the bank uses the "proxy" of its funding rate, also known as the average swap spread (hereafter, "the swap"). Looking at the average spread between the base and the swap, in this part of the curve, we see that it is around 40bps for the period 2021-2023 and that today it is close to twice this magnitude (5y 73bps; 6y 80bps). We can conclude then that a basis so far away from the swap is detrimental to bank placements, so it is the basis at high levels that is the ultimate cause of tight spreads.

In conclusion, government bonds are cheap and bonds with spreads are expensive, so the natural recommendation is to buy the former and sell the latter. Of course, always with nuances. So far we know the calendar up to September 26, but the publication of the fourth quarter schedule is still pending. In this, timing is critical. The window is open, but you have to know when to enter.

Pablo Gallegos
Money Desk Assistant Manager