(Bloomberg) -- Chile bond investors are regaining their appetite for risk, with more now willing to buy lower-rated corporate debt than at any time since February last year, a monthly survey shows.

The percentage of analysts and traders recommending investors buy debt rated as low as ‘AA’ in December almost doubled to 57% from the month before. Those who won’t go beyond ‘AAA’ papers, the highest grade, dropped to 21% from 64%.

It’s the second time investor taste for risk has surged this year. However, a brief rally in July proved to be a false dawn as concern over further tightening in the US sent global yields soaring back up. This time may be different though. Most now expect the Federal Reserve to start cutting rates in the first half of next year as inflation slows, paving the way for its counterpart in Chile to speed up its monetary easing cycle again. 

“The market’s biggest risk was that the Fed’s contractionary cycle would continue, a risk that has been decreasing and consequently the appetite for risk has returned,” said Jaime Achondo, general manager at the brokerage firm Fynsa. “Given how disinvested portfolios are — positioned mainly in money markets— we believe that this trend should continue.” 

The US central bank held interest rates unchanged at a 22-year high for a second-straight meeting last month, with officials swinging to a more dovish tone since then. That has put US bonds on track for their best month since the 1980s.

“In the current scenario, it seems plausible to increase the pace of rate cuts in Chile from the 50 basis points that were made at the last meeting,” said Alexis Vega, a fixed income trader at Banco de Credito e Inversiones. 

Corporate Craze

Demand for corporate debt in general is on the rise, with 57% of traders preferring those papers in December, while government bonds were favored by 43%. And for the first time since August, no one said they would avoid the local bond market altogether. 

The sharp drop in rates in Chile in November — by more than 100 basis points in some parts of the curve — has pushed mutual and pension funds to extend duration and go out and buy bonds, said Diego Pino, head of trading at Scotia Corredora de Bolsa. That is encouraging the sale of new debt.

“A space has opened for new banking issues of about 4 million UF per week, and probably new corporate issues in the coming weeks,” Pino said. 

There were no non-banking corporate debt sales in Chile in October or November, compared to three in September and one in August, according to data on the securities regulator’s website. 

Constitutional Referendum 

For those who can drag their attention away from US rates, the focus will be on Chile’s constitutional referendum on Dec. 17. Everyone questioned by Bloomberg said it will be the main local political driver this month. 

Approval of the draft charter would be net positive for the nation’s economy and markets since it includes pro-growth measures, JPMorgan economist Diego Pereira said in a note last month. 

But whichever way people vote, the referendum will mark the end of a three-year process to change a constitution that dates from the dictatorship of Augusto Pinochet. Should people vote against the proposals, the government has said it won’t push for a third re-write of the charter.

“The political signal of closing the constitutional discussion will be decisive in reestablishing investor confidence,” Credicorp economists Samuel Carrasco and Daniel Velandia said in an emailed response to questions.


All events in Santiago local time.

  • Chile:
    • Dec. 7 8am: November CPI
    • Dec. 7 8:30am: Trade Balance
  • International:
    • US:
      • Dec. 4: Factory Orders October
      • Dec. 4: Durable Goods Orders final October data
      • Dec. 6: MBA Mortgage Applications for the week ending in Dec. 1
      • Dec. 6: ADP Employment Change November
      • Dec. 6: Trade Balance October
      • Dec. 7: Initial Jobless Claims for the week ending in Dec. 2
      • Dec. 8: Change in Nonfarm Payrolls November
      • Dec. 8: Unemployment Rate November
      • Dec. 8: U. of Mich. Sentiment preliminary December data
    • China:
      • Dec. 7: Trade Balance November
      • Dec. 8: CPI November
    • Europe
      • Dec. 7: Eurozone Aggregate GDP final 3Q data


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