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Chilean Domestic Bond Yields Tumble After Government's First Foreign Sale
Chile’s bond yields and interest- rate swap rates fell after the government sold its first international peso bond at a lower yield than it pays to borrow at home.
The yield on 10-year government bonds in pesos dropped 10 basis points, or 0.1 percentage point, the most in at least six months, to 5.97 percent after the government sold similar debt overseas at 5.5 percent. The 10-year swap rate in pesos dropped six basis points to 5.58 percent as of 2:08 p.m. New York time.
Chile’s government yesterday sold $1 billion in dollar bonds at 3.89 percent, the lowest yield in the country’s history, as well as $520 million of the peso bonds, the first such sale. Traders had trimmed yields on domestic bonds and swaps since Finance Minister Felipe Larrain announced marketing for the bonds on July 22.
“Chilean fixed income is newly attractive after yesterday’s bond placement, which reflects the strong appetite of international investors for this kind of instrument,” said Aldo Lema, chief economist at Banco Security in Santiago. “We have also seen a transitory effect in rates because activity numbers from June, and especially industrial output, were somewhat lower.”
Industrial output grew less than forecast in June, even as unemployment unexpectedly fell.
The 10-year swap rate has fallen 15 basis points from 5.73 percent on July 22 and the 10-year bond yield declined 38 basis points from 6.34 percent. Swap rates, which reflect views of the likely average of future borrowing costs, had risen after the central bank lifted its benchmark rate by half a percentage point for a second consecutive month on July 15.
U.S. Growth
Investors should bet that the one-year rate drops back to 3.1 percent, from today’s 3.47 percent, because mixed economic data and risks to U.S. growth may slow central bank rate rises after August, Diego Donadio, a strategist at BNP Paribas in Sao Paulo wrote today in a note to clients.
The one-year rate has slid since reaching a 17-month high of 3.54 percent on July 22.
Chile’s peso strengthened 0.4 percent to 521.25 per dollar from 523.55 yesterday. The peso appreciated 4.8 percent in July, more than other Latin American currency tracked by Bloomberg as investors increased their appetite for risky assets and copper, Chile’s biggest export, rallied 12 percent in London.
Chilean industrial output grew 2.9 percent in June from a year earlier, the National Statistics Institute said July 28, less than the 5.3 percent median forecast of 12 economists in a Bloomberg survey.
Unemployment slid to 8.5 percent in the three months through June from 8.8 percent in the three months through May, the Institute said today. The median estimate of 11 economists surveyed by Bloomberg was for a rise in the rate to 8.9 percent.
To contact the reporter responsible on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net
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