CHILE - Chilean pension funds are boosting holdings of foreign bonds to record levels after a dearth of local corporate sales pushed yields to a two-year low.
Chile's six private pension funds tripled holdings of foreign fixed-income assets in the past 12 months to $20bn at the end of July, while cutting local holdings by $2.5bn, according to the industry's regulator.
The average peso-denominated corporate bond yield tumbled to 3.72% on August 24, the lowest since April 2008, after a decline in offerings cut the supply of the securities, according to Santiago-based data company LVA Indices. In Brazil, by comparison, local corporate bonds pay yields linked to the country's benchmark 10.75% overnight rate.
"More adventurous investors can buy in other countries in the region where yields are more attractive and swap into local currency," Ricardo Gomez, head of fixed income at Larrain Vial SA in Santiago, said in a telephone interview. "There are opportunities in Brazil, Colombia and Mexico."
Overseas bond investments can return a yield of more than 500 basis points, or 5 percentage points, over interest-rate swaps, compared with less than 350 basis points for Chilean bonds, said Rodrigo Nader, who runs a $427m closed-end fund at Santiago-based Celfin Capital SA. About 80% of his Deuda Latinoamericana fund is invested in Brazilian and Mexican corporate debt, followed by bonds from Colombia, Peru and international bonds sold by Chilean companies, he said.
Nader said he plans to re-open his fund to investors in September after selling out of fund quotas in June. "There's a lot of demand," he said.
Chilean companies and banks sold $2.4bn of local bonds in the first seven months of this year, down from $4.1bn in the year-earlier period, according to the Santiago stock exchange. Companies sold a record $7.5bn in all of 2009 as they took advantage of a temporary suspension of the 1.2bn stamp duty on credit.
The $20bn that pensions had in foreign fixed-income holdings accounted for a record 16% of their total assets under management last month, according to the pension regulator. The percentage is up from 6.2%, or $6.4bn, in July 2009 and 0.1% in July 2007, according to the industry regulator, which doesn't report fixed-income holdings by country.
Investors, driven by depressed interest rates, slower global economic growth and rich equity market valuations are examining non-traditional investment opportunities.
The registration deadline for the Workplace Savings & Benefits Awards 2019 is today.
This week's top stories were the DWP giving the green light to CDC and TPR granting extensions for 11 master trust authorisation applications.
Susan Martin says building strong foundations for business are the only way forward as the pensions industry is radically shaken up