Bloomberg News

Chilean Peso Rebounds as Alcoa and ECB Bolster Investor Optimism

April 11, 2012

Chile’s peso rebounded from the biggest drop in more than a month as reduced concern about the outlook for Europe’s debt crisis spurred demand for emerging- market currencies.

The peso gained 0.4 percent to 486.88 per U.S. dollar after falling 0.8 percent yesterday. The Bloomberg JPMorgan Latin American Currency Index gained 0.2 percent.

Investors sought out higher yielding assets after a surprise profit from Alcoa Inc. opened the U.S. earnings season and yields on Spanish government bonds fell, bolstering the outlook for global economic growth. The peso yesterday declined the most in five weeks after copper fell through $3.70 a pound on data showing China’s imports rose less than forecast.

“The market is a bit more optimistic,” said Andres de la Cerda, a money-markets trader at Bice Inversiones in Santiago. “There’s not much local data but everything’s appreciating against the dollar. European markets have improved.”

European Central Bank Executive Board member Benoit Coeure suggested the bank could start buying Spanish bonds to control the country’s borrowing costs.

Offshore investors in the Chilean peso forwards market had a $6.4 billion bet against the currency on April 9. Local investors had a $15.7 billion long peso position, down from $17.5 billion at the end of March.

The reduction in the long peso forwards position may reflect that pension funds have reduced exposure to foreign assets. Pension funds increased holdings of foreign equities for a third straight month in March. At the same time they reduced holdings of Chilean fixed-income securities to 45.6 percent of total assets, the lowest since March.

Bond Sale

Chile’s government sold $314 million of fixed-rate and inflation-linked bonds due in 10 and 20 years at an auction managed by the central bank.

The government sold 45 billion pesos of 10-year fixed-rate bonds at a yield of 5.9 percent, a discount of seven basis points from the 5.83 percent yield on bonds yesterday, and 21.3 billion pesos of 20-year fixed-rate bonds at 6 percent. It sold $111 million of 10-year inflation-linked bonds at 2.63 percent and $66 million of 20-year inflation bonds at 2.83 percent.

Pension funds and insurers bought 97 percent of the 20-year fixed-rate bonds and 72 percent of the inflation-linked 20-year bonds.

The ratio of orders to bonds sold was higher in the fixed- rate bonds. The bid-to-cover ratio on the 20-year fixed rate bonds was three while on the 20-year inflation bonds it was 1.6.

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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