Chilean pension funds saw their mark-to-market losses on foreign interest-rate swaps shrink to $2.9 billion by late October, recovering from $7.7 billion the prior month. This rebound was largely driven by the US 10-year Treasury yield dropping over 30 basis points from an October high near 5.3%. The lower yields bolstered Chile's conservative D and E portfolios, which gained 1.8% and 3.2% respectively during the month. Nevertheless, questions linger over whether this recovery resulted from lower interest rates or from managers unwinding derivative holdings before an early November regulatory deadline.
Key points
The domestic pension regulator has launched formal proceedings against all seven asset ma…: The domestic pension regulator has launched formal proceedings against all seven asset managers over potential fiduciary duty breaches.
Total portfolio losses across both domestic and foreign institutions dropped to approxima…: Total portfolio losses across both domestic and foreign institutions dropped to approximately $7 billion by October 20.
Pension funds face continued financial vulnerability as US Treasury yields edge higher ag…: Pension funds face continued financial vulnerability as US Treasury yields edge higher again in November.
Sources checked by our analysis pipeline: 1
(Bloomberg) -- Chilean pension funds narrowed their market-value losses on foreign interest-rate swaps in October as a rally in US Treasuries provided some relief to a system under heavy pressure from politicians to reduce risks and boost payments.
The AFPs, as the funds are known, had $2.9 billion in mark-to-market losses on foreign interest-rate swaps with international banks at the end of last month, according to figures released Tuesday by the pension regulator. That was down from $7.7 billion at the end of September.
The improvement offers some respite for the AFPs after they faced a political backlash over large positions built up in US interest-rate derivatives during the past two years, effectively betting that yields would fall. The strategy initially paid off, but gains reversed sharply this year as a global bond selloff sent US yields surging.
In October, however, US Treasuries rallied again, with the 10-year yield falling more than 30 basis points from a peak of about 5.3%, its biggest monthly decline since 2023. Yields have edged back up again so far in November, a move that…
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