Chile Inflation-Linked Yields Rise to Highest in Three Years

Chilean inflation-linked bond yields increased to a three-year high after a report showed last week that consumer prices unexpectedly fell in June.

The yield on two-year inflation-linked bonds rose 13 basis points, or 0.13 percentage point, to 2.91 percent. The one-year swap rate in unidades de fomento, the Andean country’s inflation-linked accounting unit also known as UF, advanced to 2.79 percent. Both levels were the highest on a closing basis since February 2009. Consumer prices fell 0.3 percent in June, confounding economists whose median estimate was for a 0.1 percent advance in prices.

“Clearly no one wants UF,” said Felipe Alarcon, an economist at Banco de Credito e Inversiones in Santiago. “‘There’s a lot of selling, but the inflation being priced in is very unlikely. If I were a buy-and-hold investor, I would buy UF deposits right this minute. It’s a sure thing.”

Chile’s peso appreciated 0.3 percent to 493.06 per U.S. dollar. Its 1.1 percent gain over the past two days is the most among six major Latin American currencies tracked by Bloomberg.

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