Chilean bonds fell, pushing yields up the most in two months, as better-than-estimated U.S. home sales and China’s pledge to speed up infrastructure spending eroded demand for haven investments.
The yield on five-year central bank bonds in pesos rose nine basis points, or 0.09 percentage point, to 5.37 percent at 1:20 p.m. in Santiago. The increase was the biggest on a closing basis since March 14. The yield fell 30 basis points last week. The 10-year bond yield climbed six basis points to 5.47 percent.
Yields rose from a three-month low last week as global stocks surged after U.S. home sales increased more than forecast and China Securities Journal reported that authorities plan to speed up approval of infrastructure projects and allocate construction funding faster to improve growth. Chilean markets were closed yesterday for a public holiday.
“This isn’t a trend change,” said Andres de la Cerda, a money-markets trader at Bice Inversiones in Santiago. “It’s a response to calmer international markets yesterday and today. If we get any negative news yields will drop again.”
China is the biggest customer for Chilean exports, more than half of which are made up of copper.
The Chilean peso was little changed at 505.38 per U.S. dollar after touching 506.70 on May 17, the weakest level since Jan. 11.
Chilean pension funds may need to unwind $1.25 billion of long peso positions under rules proposed by the industry regulator, according to estimates from economists at Nomura Holdings Inc. in New York. The proposed changes would go into effect in September following a consultation period.
Offshore investors increased net short position in the peso forwards market to $9.5 billion on May 17, the most since September 2009. Offshore investors have cut bets on the peso by $10 billion in 10 months and by $2.5 billion in the past month.
Local investors increased their long position in pesos to $17 billion, the highest since April 2. The local forwards peso position is dominated by pension funds hedging the currency risks of investing abroad, so rising peso forwards bets may indicate the mark-to-market value of offshore investments is increasing.
Interest-rate swaps rose. The two-year swap increased four basis points to 4.86 percent while the two-year break-even inflation rate rose four basis points to 2.98 percent.
The gap between swap rates and bond yields widened. The five-year swap at 5.08 percent is 29 basis points lower than the 5.37 percent five-year bond yield, the biggest spread this year.
Chile’s central bank auctioned today $135 million of bonds due in two and five years. The bank sold 33 billion pesos ($65 million) of fixed-rate peso bonds due in two and five years and $69 million of inflation-linked five-year bonds. It set a yield of 5.21 percent on the two-year bonds, 5.42 percent on the five-year fixed notes and 2.34 percent on the inflation bonds.
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