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Chile targets international inflows for local bonds as pension funds shrink

Chilean corporates can now sell through Euroclear, following the sovereign’s successful experience.

A worker at the door of the Chilean Central Bank building in downtown Santiago.
A worker at the door of the Central Bank of Chile in downtown Santiago.
Photo: Reuters

Chile’s Ministry of Finance has enabled the country’s corporates to sell local debt deals to international investors through Euroclear.

The move – which replicates the sovereign’s move to ‘Euroclearability’ in 2017 – comes as the country’s congress contemplates authorizing further withdrawals from the country’s pension funds, leading to fears about the liquidity of its local capital markets.

Patricio Sepulveda, head of Chile’s office of public debt, says the assets under management in the country’s pension funds has fallen from $213.6 billion-equivalent at the end of 2020 to $184 billion in July 2021 (the latest reported figures). In September, Chile’s congress will debate a proposal to allow a further $15 billion out of the system.

Sepulveda says the ability to sell local currency debt direct to foreigners will help offset the lower liquidity of the country’s pension funds – a key buyer of longer term debt. He points to the sovereign’s debt strategy since its debt was made Euroclearable in 2017 as an example: foreign holdings of local Chilean bonds have grown from almost zero to 17% today – with foreign investors targeting new issues of nominal bonds (the foreign participation of nominal bonds is now 25%, or $9.6

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