Conservative’s Rise in Polls is Giving a Boost to Chile’s Ailing Bond Market
(Bloomberg) -- The race for Chile’s presidency has been thrown wide open by a sudden surge in support for a far-right candidate, who has stolen the thunder from the left-wing favorite with a program to slash taxes. The bond market is beginning to pay attention.
In the last two weeks, the yield on CPI-linked Treasury bonds due in five years tumbled 54 basis points, while nominal notes dropped 26 basis points. The yield on debt maturing in 2030 also fell, declining 57 basis points for the inflation-linked instrument, and 43 points for the peso bond.
While most of the decline in yields was probably due to mounting opposition to a fourth pension fund withdrawal bill, growing support for conservative Jose Antonio Kast is also playing a role. Polls show backing for Kast ahead of the Nov. 21 election more than doubling in the past month, with some surveys even indicating he will beat the former student leader Gabriel Boric in a second-round vote on Dec. 19.
“Little by little the market is beginning to take on some bets that Kast may have a chance of winning, an idea that has helped yields decompress,” said Gregorio Velasco, fixed income manager at BCI Asset Management. Opposition in the Senate to the pension bill has also caused yields to drop, though they continue to exceed their “just value,” he said.
If approved, the withdrawal bill would force pension funds to sell as much as $20 billion in assets. While that’s the dominant factor in the markets, Kast’s rising popularity is also playing a role, said Victor Recabarren, deputy fixed-income manager at STF Capital.
The Senate is set to vote on the pension bill this week, with at least two opposition lawmakers breaking ranks and saying they won’t back the proposal. Rejection in the Senate would send the text back to a mixed committee comprised of deputies and senators.
If the bill fails, yields would drop further, though the impact may be temporary given uncertainty over the elections, the rewriting of the constitution and even the possibility of more pension withdrawal proposals, Banchile Inversiones economists Carolina Grunwald and Agustin Garcia said in a report.
Banchile sees yields rising by the end of the year, even though its base scenario includes a rejection of the bill, with the yield on the central bank bond due in five years advancing to 6.1%, from 5.7% today, and the one due in 10 years to 6.5% from 5.9%.
Approval of the bill would send yields much higher as it would raise the possibility of a total withdrawal of money from the private pension system, Garcia said.
For BICE Inversiones Chief Economist Marco Correa, the yield on 10-year Chilean Treasuries could rise as much as 300 basis points in the coming months if the fourth withdrawal is approved and the fiscal deficit deteriorates, he said.
Still, as conditions in the fixed-income market improved last week, banks issued more debt, with Itau CorpBanca selling $187 million in CPI-linked bonds due in 2027 and 2029, to yield 3.31% and 3.04%, respectively.
- In Chile:
- Nov. 8: Oct. CPI
- Nov. 8: Oct. Trade Balance
- Nov. 8: Oct. Copper Exports
- Nov. 9: Oct. PPI
- Nov. 10: Oct. CPI
- Nov. 10: Sept. Wholesale Inventories
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- Nov. 9: Oct. CPI
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|Company||Amount to issue||Term||Rating|
|Banco Consorcio||6m UF||25 years|
|Aguas Andinas||2m UF||2027, 2031|
|Red Salud||1.7m UF||2026 and 2028|
|Suministradora de Buses K Uno||4m UF||10 years|
|Cementos Polpaico||4m UF||A+ (Feller)|
|Fondo de Inversion LV-Patio Renta Inmobiliaria I||1.5m UF|
|Empresas Hites||1m UF|
|Ingevec||800.000 UF||5 years|
|Inversiones Punta Blanca||2.5m UF||10 and 30 years|
|Asset Rentas Residenciales Fund||4m UF|
|Forum||3m UF||2024 and 2026|
RECENTLY ISSUED BONDS
|Nov 3||Itau||5m UF||3.31% and 3.04%||2029 and 2027|
|Oct 25||Scotiabank||3m UF||3.7%|
|Oct 25||Banco de Chile||4m UF||3.71%|
|Oct 25||Banco Estado||1m UF||3.6%|
|Oct 25||Security||1.5m UF||3.35%|
|Oct 22||Banco de Chile||4m UF||4.01%|
|Oct 21||Scotiabank||4m UF||4.01%|
|Oct 21||Banco Itau||CLP50,000m||7.15%|
|Oct 14||Banco BICE||CHF110m||MS+95||2026|
|Oct 14||Banco de Chile||CHF130m||MS+60||2026|
|Oct 12||Santander Chile||CHF190m||MS+60||2026|
|Sep 21||Banco BCI||3m UF||2.05% and 2.25%||2027 and 2028|
|Sep 15||Scotiabank||2m UF||2.85%||2031|
|Sep 14||Banco Security||1.15m UF||2.61%||2027|
|Sep 14||Banco Itau||2m UF||2.43%||2027|
|Sep 9||Enap||$560m||3.492%||Baa3 (Moody’s)|
|Sep 8||Metro de Santiago||$650m||40 years|
|Sep 7||Efe||$500m||3.83%||40 years|
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