Chilean Pension Funds Reduce Swap Losses to $2.9 Billion

Chilean pension funds, known as AFPs, reduced their mark-to-market losses on foreign interest-rate swaps to $2.9 billion at the end of October. This represents a significant recovery from the $7.7 billion in losses reported in September.

The recovery followed a rally in US Treasuries, during which the 10-year yield fell more than 30 basis points from a peak of 5.3%. The funds had previously incurred heavy losses after betting that US yields would decline, a strategy that failed during a global bond selloff earlier in the year. While conservative D and E funds rebounded in October, the overall management of these positions remains under scrutiny.

The pension regulator is currently investigating all seven AFPs for possible breaches of fiduciary duties regarding the management of these derivatives. Simultaneously, lawmakers are examining whether the funds implemented adequate risk controls as their positions grew.