Chile Breakeven Rates Tumble on Surprise CPI Drop; Peso Steady

Chilean breakeven inflation rates plunged after a government report showed consumer prices dropped unexpectedly in November.

The one-year breakeven rate fell the most since July, decreasing 20 basis points, or 0.20 percentage point, to 2.32 percent at the close of trading in Santiago. The two-year rate fell 12 basis points to 2.71 percent. Breakeven inflation rates are derived from the gap between the fixed-rate yields and inflation-linked yields on derivatives linked to interest rates.

The National Statistics Institute today reported that consumer prices fell 0.5 percent in November. The median forecast of economists in a Bloomberg survey was for no change. Traders in the forwards market for unidades de fomento, Chile’s inflation-linked accounting unit, had projected a 0.25 percent drop.

“The number was a major surprise,” said Enzo Sepulveda, a forwards trader at Banco Santander Chile in Santiago. “Short- term prices are falling, but implied inflation for future months is more or less the same.”

The yield on five-year inflation-linked bonds climbed 12 basis points, or 0.12 percentage point, to 2.77 percent, the highest since July 2011.

Annual inflation will slow below the central bank’s target range of 2 percent to 3 percent this month and drop as low as 1.42 percent in February, according to traders in the forwards market for unidades de fomento.

The peso was little changed at 476.99 per U.S. dollar.

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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