The title in question is nothing more than a phrase coined during the last year, in hallway conversations in the office, and its purpose is no more than to summarize a thesis shared by some members of the team. This is based as a starting point on an economic scenario that is still partially in place today: galloping inflation and, therefore, central banks restricting the money supply, the real and financial sectors suffering the effects of the latter, together with an economy on the verge of entering recession. Under these parameters, the "book" bet is to invest in fixed income, aiming at the change of "stance" of central banks and the expected reversal of rates. Of course, in a scenario of economic fragility, always aiming at good quality credits, either directly government or investment grade bonds, favoring the high correlation of these with the former and moving away from riskier assets such as high yield credits or equity. By this I mean, in Chilean, "getting on the micro".

Much water has flowed under the bridge so far and, as always, the market is a source of infinite humility. At the beginning of this year, under the logic explained in the previous paragraph, betting on Equity, either locally (IPSA) or abroad, would have been considered a more than risky bet and, nevertheless, it has more than rewarded "the brave". To this we can even add the behavior of the treasury, a safe haven asset par excellence, but no less volatile for this reason.

The general scenario has also evolved, the world is changing and will never stop changing. It is already a fact that inflation is easing and, at the local level, we have explicit signals that the beginning of rate cuts will be sooner rather than later. On the Fed's side, we are on the fence: the next rate hike is expected to be the last. The U.S. economy has shown unusual resilience and it is no longer a distant possibility that it can even avoid recession. Not so Chilito, but these are details.

With all these cards on the table, rather than thinking about when to get on the bus, it is legitimate to think that maybe we have already missed it. But not necessarily. Looking at a GT10 near 4%, not only near a local high, but also over a 25-year period, I remain firm in my stance that there is room to benefit from a rate rally. Speaking of "4%", many may have their eye (or pear) twitching considering the asset volatility so far this month, but don't panic; the micro may take a few turns along the way, but it will eventually reach the terminal. Similar to the US, the economic outlook for Latam has improved, although I would not take for granted an extremely benign scenario on this front and, above all, I do not consider it a justification to get creative in credit analysis. The focus should remain on the search for investment grade opportunities in the region, to the detriment of high yield. No one wants to jump on the bandwagon only to be stranded in the middle of the road.

Pablo Gallegos, CFA

Assistant Manager Money Desk