COVID-19 pension raids and sovereign risk

Chile was among the nations where the regulations allow individuals to make withdrawals from their retirement savings to cope with the COVID-19 pandemic. We analyze these quasi-natural experiments using the Autoregressive Distributed Lag Stationarity model and event study methodology spanning from March 2020 to April 2021. We find evidence that the first regulatory shock reduces the spread between the ten-year nominal sovereign bond yield and the annual interbank rate and amplify the impact of agent economic perceptions in the short term. These findings are useful for policymakers and investors regarding to adverse repercussions of this the policy on the economy going forward. • The regulator allowed people to make a partial withdrawal from their own pension savings • Each withdrawal increased the spread between long-term and short-term rates • Gov. policies to mitigate pandemic’ effects led to a decrease in the spread in rates