Chilean Inflation-Linked Swap Rates Fall on Price Rise Surprise

Chilean inflation-linked swaps fell to a month low after a report showed prices rose the most in three years last month.

The one-year swap rate dropped 11 basis points, or 0.11 percentage point, to 1.97 percent at 1:57 p.m. in Santiago. One- year break-even inflation rose 11 basis points to a one-month high of 2.94 percent. Five-year inflation-linked bond yields slid six basis points to 2.25 percent and the yield on 10-year inflation-linked bonds was down one basis point to 2.35 percent.

Consumer prices rose 0.8 percent in September from a month earlier, the fastest since September 2009. The median forecast of 11 economists in a Bloomberg survey was for a 0.6 percent increase while traders in the forwards market had priced in a 0.59 percent advance. The National Statistics Institute published the data Oct. 6.

“It’s positive news in a way: inflation 20 basis points above expectations shows that the economy is still strong,” said Jose Miguel Gredilla, a trader at Banco Santander Chile in Santiago. “The swaps market is very driven by the U.S. and the data from Europe, with stocks falling and the euro weaker offsetting the Chilean data.”

Traders in the forwards market for unidades de fomento, Chile’s inflation-linked accounting unit, expect inflation of 1.95 percent in 2012, up from the 1.79 percent they were pricing in on Oct. 5.

Chile’s peso fell to a two-week low as copper dropped after the World Bank forecast slowing growth in East Asia, the destination for most of Chile’s copper exports.

The currency declined 0.2 percent to 474.35. Earlier it touched 475.55, the weakest on an intraday basis since Sept. 24.

Copper for December delivery fell 1.6 percent to $3.7255 a pound on the Comex in New York. Chile is the biggest copper producer in the world.

Chile posted its third straight monthly trade deficit in September, the longest streak since 2008, according to central bank data published today.

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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