• Yields on foreign debt higher than local bond returns
  • Nation's debt government bond sales on course for record year

Chile’s dollar debt is at the cheapest in a year relative to local-currency notes, threatening efforts to attract foreign investors to the highest-rated sovereign borrower in Latin America.

Even after swapping the 10-year overseas notes sold last month back into pesos, using the cross-currency swaps market, they would end up yielding more than a percentage point above domestic debt. In most of the world, local notes offer higher returns than overseas bonds because of the perception that they’re riskier.

The average yield on Latin American local sovereign debt has increased more than 2 percentage points over the past three years to 7.88 percent, while the yield on Chilean local market bonds fell more than a percentage point to 4.47 percent. Unlike with most emerging markets, in times of increased investor aversion to the riskiest assets, Chilean debt yields tend to track Treasury yields lower.

Chile has sold $2.5 billion of bonds already this year, the most on record. Its dollar bonds have returned 0.9 percent in the past 12 months, the only major investment-grade country in the region with a positive return.

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