Interest rate swaps, derivative contracts entered into by pension fund managers, explain the entire decline in Fund E through August, according to Diario Financiero. Between January and September, the system’s most conservative fund lost 10.39% in real terms. No other source has yet confirmed the newspaper’s calculation.
The loss figures come from the Superintendency of Pensions. In September alone, Fund E fell 4.92% in real terms. This is its second-worst January-to-September result since the multiple-fund system began, after 2021. It affects 768,836 members, many of them close to retirement.
Funds D and C are also down, with losses in real terms of 6.38% and 1.50%, respectively.
The external trigger was the rise in the 10-year US Treasury yield. It went from 4.18% at the end of 2025 to more than 5.35% this week, its highest level since 2002. When interest rates rise, bond prices fall, and conservative funds are full of bonds.
According to Diario Financiero, the problem was the investment approach. An interest rate swap allows a pension fund manager to gain or lose as if it held long-term bonds, without buying them. This allowed the managers to add "duration," which measures how much a portfolio’s value moves when interest rates change.
Think of duration as an amplifier. If the interest rate rises by one percentage point, a bond with a duration of two years falls by about 2%. One with a duration of ten years falls by about 10%. Two pension fund executives told the newspaper that, until a few months ago, about half of the funds’ duration came from derivatives.
Señal DF, the newspaper’s analysis unit, calculated using the portfolios published by the Superintendency that swaps cost Fund E 4.21 percentage points between December and August. Over that period, the fund fell 3.03%. Without the swaps, it would have gained about 1.2%.
The impact grew in September. According to Superintendency reports cited by the newspaper, the value of Fund E’s derivatives went from US$ 518,531 million at the end of 2025 to US$ -900,881 million in September, a decline equivalent to 6.1 percentage points of the fund’s value.
The bet has a history. The three pension fund withdrawals in 2020 and 2021 took US$ 48,608 million out of the system and left pension fund managers with less liquidity. Believing interest rates would fall, they used derivatives to add duration without putting up money. A fixed-income manager described it as "a race to see who had the most duration".
The Central Bank of Chile had warned about it. In its Financial Stability Report for the second half of 2025, it showed that the funds’ position in dollar interest rate swaps went from almost zero in August 2023 to more than US$ 230,000 million at the beginning of 2026.
The strategy worked in 2025, when swaps added 3.05 percentage points and Fund E returned 11.75% in nominal terms. In 2026, the war in the Middle East made oil more expensive, reignited inflation and pushed interest rates up. Between December and May, the pension fund managers with the largest swap losses in Fund E were Modelo (−3.17 percentage points), Capital (−2.96) and Cuprum (−2.86).
There was a second front. Fund E increased its forward sales of dollars through forward contracts, which set the price today for a future purchase or sale. In December, it hedged 47% of its dollars. In July, that reached 121%, while no other fund exceeded 55%. A manager clarified that part of the increase could be due to collateral required for the swaps.
The dollar rose anyway, contrary to market forecasts. In January, Goldman Sachs projected $840 in twelve months, but the currency closed at $990 on October 2, its highest level since April 2025. According to the newspaper, that impact was smaller than the impact of interest rates.
The report does not include recommendations for members. The Superintendency has yet to publish the September portfolios, which will make it possible to verify how much derivatives contributed to the month’s loss.
