Bloomberg News

Chilean Peso Advances as Spanish Debt Auction Spurs Risk Demand

December 20, 2011

Dec. 20 (Bloomberg) -- Chile’s peso strengthened as a Spanish bond sale and an unexpected increase in German confidence bolstered demand for riskier emerging-market assets.

The peso gained 0.3 percent to 519.2 per U.S. dollar at 12:41 p.m. New York time, from 520.75 yesterday.

Spain sold 5.64 billion euros ($7.38 billion) of Treasury bills, more than its maximum target, and its borrowing costs dropped as the European Central Bank prepared to start offering banks unlimited three-year loans later today. Business confidence in Germany rose for a second month in December as two economic institutes predicted Europe’s biggest economy will stave off the debt crisis and avoid a recession in 2012.

“The debt auction in Spain was better than expected and that’s pushing up markets,” said Sergio Tricio, head of research at ForexChile. “Copper and the S&P 500 have remained relatively stable recently,” he said, forecasting the peso to trade between 516 and 521 in the coming days.

The price of copper, Chile’s main export, rose 2 percent and the euro gained 0.7 percent against the dollar.

Swap rates fell after the central bank published its quarterly monetary-policy report in which it lowered its growth forecast for next year. The one-year interest-rate swap in pesos fell one basis point, or 0.01 percentage point, to 4.33 percent.

Bond yields rose as the interbank deposit rate climbed to the highest since January 2010. The 90-day interbank rate in unidades de fomento, the country’s inflation-linked currency unit, climbed to 5.85 percent on Dec. 16, the highest since January 2010. It fell to 5.84 percent today. Bank borrowing costs in unidades de fomento have spiked at the end of the year every year since 2001.

‘Deposits Are Rising’

The nominal 90-day interbank rate reached 6.94 percent today, the highest since the National Bank Association changed to an annual rate in May 2010. The rate has climbed from 6.07 percent at the end of September.

“Deposits are rising and that’s feeding through into bonds,” said Andres de la Cerda, a money-markets trader at Bice Inversiones in Santiago. The lack of liquidity for banks may ease in the new year because of coupon payments on Jan. 1, he said.

Deteriorating global financial conditions have contributed to “friction” in the local financial market, the central bank said today.

Government Bond

The yield on a 10-year inflation-linked government bond climbed six basis points to 2.56 percent from an eight-week low of 2.5 percent reached yesterday. The yield on a similar bond from the central bank increased seven basis points to 2.57 percent.

Offshore investors in the Chilean peso forwards market increased their short position in the peso to $5.7 billion on Dec. 16 from $5.5 billion a day earlier, according to data published today by the central bank.

Food company Agrosuper SA sold 21-year inflation-linked bonds at a yield of 4.78 percent, 192 basis points more than the yield on 20-year inflation-linked central bank bonds. That’s the highest spread paid by a Chilean company on a benchmark bond sale since at least January 2010, according to data compiled by Larrain Vial SA.

The company, rated A by Fitch Ratings and AA- by Feller Rate, is under investigation by the country’s economic prosecutor for alleged participation in a chicken-meat cartel. It conspired with two other companies, Empresas Ariztia SA and Agricola Don Pollo Ltda, to limit production of chicken in a bid to maintain prices, according to documents presented to the Chilean competition tribunal by the prosecutor.

The company said in a statement published on the website of the Santiago stock exchange dated Dec. 7 that it “categorically denies the existence of anti-competitive agreements” and that it is consulting with its lawyers on a response to the accusation.

--Editors: Glenn Kalinoski, Brendan Walsh

To contact the reporters on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net or 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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