Chile’s peso extended its steepest weekly decline since September after copper dropped and the central bank kept the benchmark interest rate at 5 percent.
The peso fell 0.3 percent on the day to 506.11 per U.S. dollar, bringing its drop this week to 3.8 percent, the most since the five days ended Sept. 23.
Chile’s peso broke through 500 per dollar for the first time since January as the price of the country’s main export copper tumbled. Copper fell 1.1 percent in New York today.
“It has been a bad week for the markets in general,” said Eugenio Cortes, head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago. “We broke through a range that had been held for two or three months.”
Offshore investors in the Chilean peso forwards market increased their short position in the currency to $8.9 billion on May 16, the biggest since October 2009 and a $1.1 billion increase in a week.
Pension funds and other local investors placed a $1.8 billion bet on the Chilean peso in the forwards market in the seven days through May 16. They had a $16.8 billion long peso position, the highest since April 4.
Chilean interest-rate swaps were little changed today after the central bank left the benchmark rate unchanged at 5 percent yesterday, in line with the unanimous forecast of 17 economists surveyed by Bloomberg. Chile’s economy grew at the fastest pace in three quarters in the first three months of the year as exports from the world’s top copper producer picked up, data published today by the central bank showed.
Swap rates declined the most since August this week as traders moved from pricing in a rate increase to a rate cut in the next sixth months. The two-year rate tumbled 35 basis points, or 0.35 percentage point, to 4.82 percent. The five-year rate fell 35 basis points to 5.04 percent.
Bond yields also tumbled. Five-year central bank peso bond yields fell 30 basis points from a week earlier to 5.28 percent. Yesterday the yield reached a three-month low of 5.25 percent. The yield on similar 10-year bonds fell 23 basis points to 5.41 percent.
“We have seen a significant decline in yields, driven mostly by risk aversion,” said Nathan Pincheira, an economist at Banchile Inversiones in Santiago. “Local investors prefer local assets.”
Swap rates have declined in 17 of 19 major markets tracked by Bloomberg this week and the Chilean swap market is more vulnerable than bonds to external influences because of the greater penetration of international investors. The spread between five-year peso swaps and bonds rose to negative 24 basis points from negative 19 basis points on May 11.
The spread on bonds sold by Chilean state-owned copper miner Codelco rose to the highest since Jan. 2 today. The extra yield investors demand to buy the company’s $1.15 billion 3.875 percent bonds due in November 2021 instead of U.S. Treasury debt rose to 178 basis points today, a 25 basis point increase from a week earlier.
The spread between Codelco bonds due in 2021 and Chile’s dollar bonds due 2021 rose 12 basis points to a six-week high of 69 basis points this week.
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