Chilean Pension Funds Suffer Billions in Losses on Backfired US Interest Rate Swaps

Chile's seven private pension funds are closing out derivative bets on falling US interest rates that backfired following a global inflation shock, swinging from a $1.4 billion gain to a $7.7 billion loss by September.

New regulatory risk limits taking effect on November 4 are forcing the funds to unwind their positions after a US bond selloff drove Treasury yields to a 24-year high.

The mandated unwinding has severely impacted fund performance, with E-funds dropping 10.4% this year and notional contract values declining from nearly $700 billion to $525 billion by August.