Chilean Inflation-Linked Swaps Rise as Demand Falls; Peso Gains

Chilean inflation-linked swap rates climbed the most in three months after a report showed consumer prices rose in February less than forecast, reducing demand.

The one-year rate increased 18 basis points, or 0.18 percentage point to 2.35 percent, the steepest rise since Dec. 7. The three-month rate was up 86 basis points to 2.96 percent. The one-year breakeven rate, the average annual pace of future consumer price increases implied by bond yields, fell 20 basis points to 2.77 percent, the lowest since January.

“Inflation insurance is falling, and rate rises are being pushed back by a couple of months from what was priced in yesterday,” Christian Gomez, a trader at Banco Santander Chile in Santiago, said in a phone interview.

Consumer prices increased 0.1 percent in February from a month earlier, the government reported today. The median forecast of 16 economists surveyed by Bloomberg was for a 0.3 percent advance. Annual inflation was 1.3 percent, the slowest pace since June 2010.

Traders in the forwards market for unidades de fomento, Chile’s inflation-linked accounting unit, had been pricing in a 0.24 percent consumer price increase in February.

Chile’s peso rose 0.1 percent to 471.55 per dollar at the close in Santiago. The currency appreciated 0.6 percent this week.

International investors in the Chilean peso forwards market raised their net bet against the currency to $3.8 billion on March 6, the biggest in two months.