UF or pesos?

It's hard to think of a more important topic for global markets over the past 24 months than inflation. Central banks' reaction was decisive, sharply tightening monetary policy by raising reference rates.

Thus, the market placed its bets. At the start of the year and after some positive surprises, fixed-income analysts recommended positioning in “pesos” at the expense of the UF. While this bias had months of positive impact, we also had data in line and more than one above expectations, such as the recent +0.7% in November vs. the projected 0.2% (which benefits those investing in UF instruments more).

The market has an implicit level of CPI variation priced into rates. If you have commitments highly indexed to inflation, investing in UF should be the right move. If you invest at short maturities—where there are fewer UF instruments—or want a known peso figure at maturity, nominal instruments have the edge.

On average, investing in pesos or UF should be neither better nor worse. The choice between these instruments should respond more to the risks you want to neutralize and less to fortune-telling.

This column was originally published on December 12, 2023 in La Segunda [LINK]