July 27 (Bloomberg) -- Chile’s peso, the best-performing currency in Latin America during the past 30 days, strengthened for a fifth week as local investors added to bullish bets and European leaders’ comments helped boost appetite for higher-yielding securities.
The peso gained 0.4 percent to 483.8 per U.S. dollar, extending this week’s advance to 1.1 percent.
Chile’s 5 percent benchmark interest rate and 2.7 percent inflation make local bond yields attractive as central banks in countries including Brazil, Israel and South Africa cut borrowing costs. The peso’s gain came as European leaders, including European Central Bank President Mario Draghi and German Chancellor Angela Merkel, vowed to protect the euro.
“It’s about fundamentals,” said Felipe Alarcon, an economist at Banco de Credito & Inversiones in Santiago. “Chile is in a pretty good cyclical economic position compared to other emerging-market countries, which have had more pronounced decelerations that led to central banks lowering rates.”
Local investors in the Chilean peso forwards market, a category that excludes banks and brokers and is dominated by pension funds, increased their long position in the peso to the highest since May this week. They had an $18.2 billion long position on July 25, a $1.5 billion increase in a week.
That rise was partly offset by an increase in bets against the peso from international investors. They had a $9.9 billion short peso position on July 25, up $684 million from a week earlier.
The cost of borrowing dollars locally for one year remained close to the cheapest since 2009, as measured by basis swaps. The cost of borrowing dollars for longer periods rose.
Chilean interest-rate swaps rose for the second straight week. The two-year swaps rate rose seven basis points today to 4.53 percent.
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