Chilean Pension Funds Face $7.7 Billion US Rate Loss
Chilean private pension funds face billions in losses after bets on falling US interest rates failed amid global inflation shocks.
Seven private pension funds in Chile, known as AFPs, are reporting a $7.7 billion loss on foreign interest-rate derivative positions as of September 2026. The funds used receiver swaps to bet on falling US interest rates, but a global inflation shock triggered by war in Iran caused a US bond selloff, pushing Treasury yields to a 24-year high.
This market shift reversed a $1.4 billion gain held by the funds a year prior. While the notional value of the contracts decreased from nearly $700 billion to $525 billion by August, the cost to close the positions increased as rates moved against the funds.
The Government of Chile Pension Regulator has mandated that the funds unwind these positions by November 4. This regulatory requirement forces the AFPs to pay Wall Street banks, including Bank of America Corp. and Citigroup Inc., to break the contracts. The regulator stated that the funds have a fiduciary duty to manage their time to meet obligations in the best interests of their members.
