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Chilean Inflation-Linked Yields Rise After Prices Unexpectedly Decline
Chilean inflation-linked swap yields jumped after consumer prices unexpectedly fell in August because of lower transport and financing costs.
The three-month interest-rate swap rate in unidades de fomento, Chile’s inflation-linked accounting unit, rose 74 basis points to 0.59 percent, the highest level since late January. The six-month rate rose 40 basis points to 1 percent, according to prices compiled by Bloomberg.
Consumer prices fell 0.1 percent from July as transport and banking costs declined, the National Statistics Institute said today. The median forecast of 18 economists in a Bloomberg survey was that prices had increased 0.2 percent while the inflation forwards market was pricing in a 0.03 percent increase, according to Banco Santander SA prices.
“What happens when we have lower-than-expected inflation and the market thinks it will continue is that people shift fixed-income portfolios from unidades de fomento into pesos,” said Rodrigo Aravena, chief economist at Banchile Inversiones in Santiago. “Yields in unidades de fomento rise and those in pesos fall. It should be transitory in any case.”
The one-year inflation-linked swap rate rose 17 basis points to 0.4 percent and the two-year inflation-linked rate rose 11 basis points to 0.87 percent. The rising inflation- linked yields imply that traders expect lower annual inflation in coming months.
Best Performer
The Chilean peso was little changed at 496.63 per U.S. dollar from 496.85 per dollar yesterday. The currency is the best-performing this quarter among 25 major emerging-market currencies tracked by Bloomberg.
The central bank will increase its benchmark rate by half a percentage point for the fourth straight month on Sept. 16, according to the median forecast of 41 traders and investors in a central bank survey published today. In six months the rate will reach 4 percent, according to the survey.
Annual inflation was 2.6 percent in August while prices excluding fuel and groceries decreased 0.1 percent in August from July, the statistics institute said today.
The three-month breakeven inflation rate, which measures expectations for average 12-month inflation over the next 90 days, dropped 61 basis points to 2.20 percent, according to Bloomberg calculations. Two-year breakeven inflation declined two basis points to 3.28 percent as of 1:38 p.m. New York time.
To contact the reporters responsible on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net or Randall Woods in Santiago at rwoods13@bloomberg.net
To contact the editor responsible for this story: David Papadopoulos in New York at
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