Business · Markets · 4 hrs ago
Chile Pension Funds’ Swap Losses Fall to $2.9 Billion in October
Chile’s pension funds cut their foreign swap losses to $2.9 billion at the end of October, down from $7.7 billion a month earlier.
The funds, known as AFPs, had built up large positions in US interest-rate derivatives, effectively betting that yields would fall.
A rally in US Treasuries helped reduce the losses, as the 10-year yield dropped by more than 30 basis points during October.
The decline offered relief to the funds, but yields have risen again in November and could put renewed pressure on them.
The funds remain under regulatory scrutiny: the pension regulator is investigating the losses and has opened proceedings against all seven AFPs over possible breaches of fiduciary duties.
New limits on derivatives exposure took effect in early November, and it is unclear how much of October’s improvement came from market moves versus funds unwinding positions.
Chilean pension funds’ mark-to-market losses on foreign interest-rate swaps fell to $2.9 billion at the end of October from $7.7 billion at the end of September.
A rally in US Treasuries helped ease the losses, although the funds remain exposed to further interest-rate swings.
The losses stemmed from positions in US interest-rate derivatives that had been built up over the previous two years.
Chile’s pension regulator is investigating the losses and has opened proceedings against all seven pension fund administrators over possible breaches of fiduciary duties.
It is unclear how much of October’s improvement came from market movements and how much from the funds reducing their positions.
- Who
- Chilean pension funds, known as AFPs.
- What
- Their mark-to-market losses on foreign interest-rate swaps fell to $2.9 billion.
- When
- At the end of October; the figures were released Tuesday.
- Where
- Chilean pension funds’ positions with international banks.
- Why
- A rally in US Treasuries helped reduce the losses; the sources do not state how much the decline also reflected the funds unwinding positions.
This story does not have two clearly opposing sides.
Chilean pension funds built up large positions in US interest-rate derivatives, effectively betting that yields would fall.
The funds had $7.7 billion in mark-to-market losses on foreign interest-rate swaps at month-end.
A rally in US Treasuries helped narrow the losses, and the more conservative D and E funds rose 1.8% and 3.2%, respectively.
The pension regulator released figures showing $2.9 billion in losses at the end of October.
The deadline for AFPs to bring their derivatives exposures into compliance with new regulatory limits passed.
- October-end swap losses
- $2.9 billion
- September-end swap losses
- $7.7 billion
- Funds covered
- Positions with international banks
- October D fund return
- 1.8%
- October E fund return
- 3.2%
- Regulatory proceedings
- Opened against all seven AFPs