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Friday, December 21, 2007

Chile's Peso and the Sovereign Rating Decision

Chile's peso gained after Standard & Poor's Ratings boosted the country's foreign currency debt rating one step to A+, the highest in South America.

S&P raised Chile's rating from A as a rally in copper, the country's biggest export, boosts the government's budget surplus. Chile has ``significantly'' strengthened its finances by setting aside more than $10 billion of windfall revenue this year to cover social program and pension costs when copper prices decline, according to the ratings company.

``It highlights their improving macroeconomic fundamentals and debt service capacity over the longer run,'' said Cathy Elmore, who helps manage $700 million of emerging-market debt at WestLB Mellon Asset in London. ``Bond spreads are already reflecting its quality.''

The peso rose 0.2 percent to 499.55 pesos to the dollar at 4:09 p.m. New York time. The yield on Chile's 8 percent peso bonds due 2015 climbed 2 basis points to 6.42 percent, according to HSBC Bank USA Chile. A basis point is 0.01 percentage point.

The spread, or extra yield, investors demand to own Chilean bonds was 1.52 percentage points over U.S. Treasuries yesterday, according to JPMorgan Chase & Co. data. By comparison, Brazilian debt yielded 2.13 percentage points more than Treasuries.

The Colombian peso fell 0.3 percent to 2,012.6 per dollar, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. The yield on Colombia's benchmark 11 percent peso bonds due 2020 rose 6 basis points to 10.35 percent, according to Colombia's stock exchange.

Argentina's peso rose 0.1 percent to 3.1370 per dollar.

Peru's sol gained 0.1 percent to 2.9755 per dollar. The yield on the country's 8.6 percent sol-denominated bonds due 2017 was flat at 6.41 percent, according to Banco BBVA Continental Lima.

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