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Chile pension funds race to unwind US rate swaps after losses
The AFPs, which manage about $229 billion in retirement assets, shifted from a $1.4 billion derivative gain a year earlier to a $7.7 billion loss by September.
Chile's private pension funds, known as AFPs, are racing to close out US interest rate bets after the Iran war sparked a global inflation shock that pushed rates higher, leaving the funds with billions of dollars in losses, according to LiveMint Markets citing Bloomberg.
The seven AFPs control roughly $229 billion in assets and are the sole source of retirement savings for most Chileans. Over the past two years, the funds built derivatives positions that would have benefited if US rates kept falling, but they are now dealing with losses as yields rose following a months-long US bond selloff.
LiveMint Markets reports that new regulations taking effect in early next month are forcing the AFPs to unwind the positions just as the contracts have moved deeply into the red. That unwind requires the funds to make payments to Bank of America Corp., Citigroup Inc., and other Wall Street banks on the other side of the trades.
The outlet said the market value of the AFPs' foreign interest rate derivatives stood at a $1.4 billion gain a year earlier, but had swung to a $7.7 billion loss by September.