Fixed income, unfinished business

As the third quarter of the year draws to a close, world stock markets exceed 14% returns in dollars, equivalent to the IPSA's performance, the latter in CLP. All this in a

context of much more controlled inflation, barely above 3% in Chile and around 3.4% for the U.S. so far in 2023.

The bond market, in line with greater uncertainty regarding the convergence of inflation and, consequently, the path of global monetary policy, shows much poorer returns: between -2% and 2% (except short durations, which can reach 5%) for local bonds and no change for the investment-grade fixed-income market in dollars.

The good news? These instruments have current accrual rates well above the long-term average. In Chile, long funds (3-5 years) exceed 4.5% and corporates 5%, both in UF. In dollars, 5.4% nominal is reached. In addition, bonds “revert to the mean,” so these rates are a good estimate of the return that

an investor exposed to these vehicles today could obtain.

Fixed income has unfinished business, but conditions could hardly be better for getting it done.

This column was originally published in La Tercera [LINK] on 20–09–2023