10-Year Treasury Bond Bidding Exceeds the Maximum Conventional Rate for the First Time Since 2008

Since the 10% withdrawals began, the market has seen the debt business come under pressure. One of those effects is higher long-term interest rates, due to the liquidation of more than US$ 9 billion in fixed income investments.

On Tuesday, the 10-year Treasury bond tender – better known as BTP and where banks participate in the allotment – obtained a rate of 6.48%. This is the highest since March 9, 2011, according to Central Bank records.

Also, the bidding rate exceeded the maximum conventional rate (MCR) for non-adjustable credit operations in local currency of 90 days or more, higher than the equivalent of UF 5,000, which is 5.98%.

The TMC is the maximum rate that financial institutions that grant loans may use.

It has existed since 1929 and aims to establish a ceiling on the interest charged to individuals for a loan.

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In 2013, the last important change was made to this legislation where the formula for calculating the maximum rate applicable to non-adjustable operations of low amounts was linked to the average rates of operations of higher amounts.

The effects

According to the banking sector, this situation has not been observed since the 2008 crisis and reflects the increase in the cost of financing. Some even say they do not remember this happening.

When the mismatch occurs, that is, the interest rate was higher than the CCT, Chilean regulations establish that the Central Bank must inform the Financial Market Commission (CMF) of this situation.

The regulator will proceed to determine that rate as current interest for the respective operations. The rate modification will be published in the Official Gazette and will be in effect from the day on which the bid was made.

For customers, there should be increases in commercial credit rates, since companies can borrow about $ 150 million for a term of one year.