Bloomberg News

Chile Peso Slides for Third Straight Day on European Debt Woes

November 17, 2011

Nov. 16 (Bloomberg) -- Chile’s peso, the worst performer over the past week among 25 emerging-market currencies tracked by Bloomberg, fell for a third day as concern that the European debt crisis is worsening cut demand for higher-yielding assets.

The peso fell 0.2 percent to 510.45 per U.S. dollar, from 509.56 per dollar yesterday. The currency has depreciated 2.1 percent in the past five days.

Global stocks fell for a third day, Italy’s 10-year bond yields rose above 7 percent for a second straight day and the euro fluctuated near a five-week low. European Commission President Jose Barroso today warned the region is facing a systemic crisis that it can’t escape without economic growth.

“The drivers are the euro, New York stocks and New York copper futures,” said Cristian Donoso, a trader at Banchile Inversiones in Santiago. “European peripheral debt has taken the front row, and everyone’s looking at yields of countries like Italy and Spain. With Italian yields above 7 percent, there’s demand for dollars in the local market. If Italian yields fall, appetite for risk will rise and the U.S. dollar will weaken.”

Offshore investors in the Chilean peso forwards market reduced their net short position in the peso to $4.8 billion on Nov. 14 from $5 billion on Nov. 11, according to central bank data.

Chile’s central bank yesterday left its benchmark interest rate at 5.25 percent, matching the unanimous forecast of 16 economists surveyed by Bloomberg.

“We expect minimal reaction from the rates curve,” Siobhan Morden, head of Latin America strategy at RBS Securities Inc. in Stamford, Connecticut, wrote today in a note to clients.

Bond Sale

Chile’s central bank today sold 41 billion pesos ($80 million) of five-year and 10-year fixed-rate bonds in pesos, it said today on its website.

The bank set a yield of 5.3 percent on the five-year bonds and 5.55 percent on the 10-year bonds, the most it has paid for either kind of debt since August.

The central bank received orders for 157 percent of the five-year bonds sold and 163 percent of the 10-year bonds on sale, it said. Banks bought 54 percent of the five-years and 90 percent of the 10-year bonds. Pension funds and others bought the rest, the bank said.

Forwards for the unidad de fomento, Chile’s inflation- linked currency unit, priced in 2.56 percent inflation next year, down from 2.69 percent a week ago.

--Editors: Brendan Walsh, Richard Richtmyer

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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