Chile to Sell First 30-Year Fixed-Rate Bonds

Chile plans to sell 30-year fixed-rate bonds for the first time, as South America’s least-indebted country seeks to establish a pricing benchmark that may help develop a nominal mortgage market.

The government will sell as much as 250 billion pesos ($530 million) of the 30-year notes, according to an e-mailed statement today from the country’s Finance Ministry. The plan was revealed as part of the government’s annual guidance on issuances for the coming year. Chile may issue as much as $5 billion of local debt overall in 2012.

The new 30-year bonds will provide a benchmark for long-term fixed-rate debt from the private sector, the Ministry said. Chile is trying to reduce its decades-long reliance on inflation-linked debt to move closer to the model used in developed markets, the government said.

“What we want is to continually build up and complete yield curves that are important for the economy,” according to the statement.

The country’s central bank, which issues debt independently of the finance ministry, yesterday announced plans to sell $3.1 billion of fixed-rate and inflation-linked bonds due in five and 10 years, while eliminating the two-year fixed-rate maturity.

‘Risk Free’

The issuance plans for both the Finance Ministry and the central bank are subject to change based on market conditions. Both entities have sought to extend the maturity of their debt by cutting out two-year bonds as well as some five-year and seven-year notes.

Last year the Finance Ministry offered 20-year fixed-rate bonds for the first time, selling 199 billion pesos of the debt.

The issuance this year by the government and central bank would be less than the amount sold in the past three years, said Jorge Selaive, chief economist at Banco de Credito & Inversiones in Santiago. The drop in volume may help push yields lower, he said.

“It is at the low end of demand for risk-free securities in the Chilean economy,” Selaive said.

The reduced volume may also leave the central bank more flexibility to issue additional bonds if needed to offset any interventions in the currency market, he said.

“It leaves room for an intervention because there’s high demand from local and foreign investors so if there was an offering of more paper it would be absorbed easily,” Selaive said.

The yield on 10-year fixed-rate bonds fell one basis point to 5.52 percent today. The yield on two-year fixed-rate bonds fell two basis points to 5.51 percent.

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