Chile was already the highest-rated country in Latin America and today’s upgrade to AA- brings S&P in line with Moody’s Investors Service’s classification. Fitch Ratings ranks the country one level lower at A+. The outlook on S&P’s rating is stable, the company said in a statement.
The extra yield, or spread, investors demand to buy Chile’s dollar bonds due in 2022 rose one basis point today to 66 basis points, or 0.66 percentage point. The spread on 2019 bonds sold by South Korea was 104 basis points. Chile joins China and the Czech Republic in boasting AA- or equivalent ratings from Moody’s and S&P.
“Chile has been trading with an implied rating of AA-, so this ratifies market trading levels,” said Jorge Selaive, an economist at Banco de Credito & Inversiones, who predicted an upgrade from S&P last month. “It will be a major advantage for Chilean companies, which should be able to issue bonds at attractive yields and it’s obviously an additional appreciative factor for the peso.”
Chile now boasts a AA ratings from two of the three largest rating companies, which may mean it is eligible to be included in more investment funds. Some fixed-income funds have rules that require all assets to have investment-grade ratings from at least two of the ratings agencies.
Chile’s central bank raised its forecast for economic growth on Dec. 18 to 5.5 percent in 2012 and as fast as 5.25 percent next year. S&P expects 6 percent growth this year and 5.2 percent next year.
“The upgrade reflects the growing resilience of the Chilean economy that in turn continues to improve the government’s capacity for countercyclical policies in the face of an external slowdown,” S&P wrote.
The cost of protecting Chilean bonds against default for five years was unchanged at 73 basis points. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.
Credit-default swaps for the Czech Republic, which is also ranked AA- at S&P, traded at 64 basis points yesterday.
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