Bloomberg News

Peso Retreats as Greek Doubts Sap Risk Appetite: Santiago Mover

January 24, 2012

Jan. 24 (Bloomberg) -- Chile’s peso fell more than any other emerging-market currency, retreating from a four-month high, as the price of copper declined and a stalemate over Greek debt sapped demand for higher-yielding assets.

The peso plunged 0.9 percent to 492.75 per U.S. dollar, reversing yesterday’s gain to the highest close since Sept. 19. Yields on government and central bank bonds declined while breakeven inflation dropped.

Copper, which accounts for half of Chile’s exports, fell as much as 1.3 percent today and the MSCI World Index of equities snapped a six-day winning streak after European finance ministers balked at putting up more money for Greece and called on bondholders to provide more debt relief. The peso rose the most among 25 emerging-market currencies tracked by Bloomberg in the three months through yesterday as copper surged 17 percent since Oct. 21 on signs of growing Chinese demand.

“This is a correction after a very good performance yesterday,” said Alvaro Vivanco, a strategist at Banco Bilbao Vizcaya Argentaria SA in New York. “People are playing the peso as a global growth currency and to continue to hold that position you need continued good news out of Asia and Europe, but it’s getting harder for that to happen.”

Offshore investors in the Chilean peso forwards market trimmed their short position in the currency to $4.4 billion on Jan. 20, the lowest since Dec. 9, according to central bank data.

Yields Slide

Central bank bond yields fell as the market continues to discount the $9 billion reduction in planned bonds auctions this year from last year. The central bank plans to sell $3.9 billion of bonds, down from $13 billion last year. The yield on the central bank’s inflation-linked bonds due in 2016 fell five basis points, or 0.05 percentage point, to a three-month low of 2.06 percent. The yield on similar bonds due in 2021 fell four basis points to 2.31 percent.

“There’s very little supply and a much lower volume of issuance than the market is accustomed too,” said Andres de la Cerda, a money-markets trader at Bice Inversiones. “We’re seeing a lot of demand for central bank and treasury bonds.”

Three-month breakeven inflation dropped to 2.22 percent, the lowest since Jan. 5, reflecting a 78 basis point increase in three-month inflation-linked swap yields in the last two weeks. Traders are pricing in lower electricity bills in February followed by higher bills in March, according to Christian Gomez, a swaps trader at Banco Santander Chile in Santiago.

The April forwards contract for the unidad de fomento, Chile’s inflation-linked currency unit fell to 22,493 pesos from 22,515 on Jan. 10. The April contract reflects expectations for February’s prices and is today pricing in 0.07 percent of price rises next month, down from 0.11 percent on Jan. 10.

Forwards are pricing in 0.48 percent of price rises in March, according to Bloomberg calculations.

--Editors: James Attwood, 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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