The beginning of 2025 has greeted us with a dynamic dollar fixed income market, driven by the movements of the Treasury rate rate movements and the massive injection of flows derived from maturities in emerging markets. Recent events invite reflection on investment strategies and how players have responded to changing conditions.

During the first half of January there were significant maturities in Chile and Brazil. Papers such as Banco Estado 2025 (US$750 million), Banco Santander 2025 (US$750 million), Transelec 2025 (US$375 million), Soberano Brasil 2025 (US$4.3 billion) and Suzano 25 (US$600 million) have exited the market without being replaced by new issues.

This has freed up a significant amount of liquidity, generating an intense search for instruments with similar attributes. The impact has been evident: upward pressure on the prices of the few available bonds that share these characteristics.

However, to understand the context, it is crucial to analyze what happened at the end of last year. U.S. employment data showed unexpected resilience, which challenged the Federal Reserve's (Fed) efforts to cool the economy. As a result, the Treasury rate rate maintained its upward trajectory, eclipsing the traditional "rally Santa's rally. But, contrary to what might be expected in a rising rate environment, 2- to 4-year bonds Investment Grade (IG) bonds held steady at their levels.

This behavior responds to an anticipated demand from funds that, with a strategic vision, capitalized competitive prices before the January maturities became effective.

The outlook changed dramatically last Wednesday, following the release of inflation data in the U.S. Although headline CPI (CPI YoY) came in in line with expectations (3.3%), core inflation showed a greater moderation than expected, standing at 3.2% versus the projected 3.3%.

This easing of underlying inflationary pressures generated a turnaround in the market: the Treasury rate rate fell 13 basis points, breaking its upward trend. The shift triggered a wave of buying across the entire bond curve, exacerbating the already strong demand for maturity flows.

For fund managers, this combination of factors has had important implications. Rising prices have put investment strategies to the test, underscoring the importance of anticipation and flexibility. Those who positioned themselves early in paper have reaped benefits, while laggards have had to pay dearly.

Massive maturities represent an opportunity to readjust portfolios. Anticipating flows before they flood the market ensures competitive prices and avoids unexpected increases in the cost of instruments.

With more maturities scheduled for the rest of January, and for even larger amounts, it is logical to consider strategic purchases prior to the inflow of these flows. This not only facilitates a better position, but also helps to mitigate the impact of possible upward pressure on prices due to high demand..

Cristián Zañartu

Cash Desk Operator