Chilean inflation-linked swap and bond yields rose today as traders in the forwards market started betting prices fell last month by the most since 2009.
The median forecast of 13 economists in a Bloomberg survey is that consumer prices rose 0.1 percent in June while forwards traders are projecting a 0.14 percent drop. The National Statistics Institute is due to publish June inflation data on July 6.
“There has been a correction in inflation with implicit inflation for now and the next two months very low,” Sebastian Ide, head of rates trading at Banco de Chile in Santiago, said in a phone interview. “That correction transfers across the curve.”
The two-year breakeven inflation rate in the swaps market fell 13 basis points today to 2.45 percent. The one-year rate dropped eight basis points to 2.39 percent.
The two-year swap rate fell four basis points to 4.59 percent even as the inflation-linked rate increased seven basis points to 2.07 percent.
The central bank today sold $63.9 million of 10-year inflation-linked bonds at a yield of 2.54 percent, the highest at auction since May 26. The yield on 10-year inflation-linked bonds has climbed from 2.43 percent on June 28.
The bank also sold $43.9 million of 10-year fixed-rate bonds at a yield of 5.35 percent. Pension funds and insurers bought 85 percent of the fixed-rate bonds and 54 percent of the inflation-linked bonds.
Chile’s peso slid after closing yesterday at a seven-week high as copper, the country’s main export, fell on signs Europe’s economy is slowing.
The peso depreciated 0.4 percent to 496.85 per U.S. dollar. The Bloomberg JPMorgan Latin American Currency Index fell 0.3 percent.
The euro, which peso traders use as a guide for the relative strength of the dollar, fell before a European Central Bank meeting tomorrow at which the bank may cut its main interest rate to a record low. Copper dropped as much as 1 percent in New York after data showed Germany’s service industries unexpectedly contracted last month.
“Commodities fell today, the euro is weakening ahead of the meeting tomorrow and markets in general are slightly more negative,” said Cristian Donoso, a trader at Banchile Corredores de Bolsa SA in Santiago. “The European Central Bank is probably going to cut rates tomorrow, which will weaken the euro and may drag somewhat on the peso. We are certainly not interested in selling dollars at this level.”
International investors in the Chilean peso forwards market trimmed their short peso position to $9.8 billion on June 29 from $10.2 billion a day earlier, according to data published today by the central bank. Local investors, led by pension funds and excluding banks and brokers, had a $17.4 billion long peso position, the highest in a month.
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