The seven AFPs (Pension Fund Administrators, the private companies that invest Chilean workers' retirement savings) face losses of US$7,700 million on contracts tied to U.S. interest rates. A year ago, those same positions showed gains of US$1,400 million.
T13 reported this based on an article by U.S. news agency Bloomberg citing figures from the Superintendency of Pensions, the agency that oversees the AFPs. The figure is for September 2026.
The administrators manage around US$229,000 million in assets. Over the past two years, they accumulated derivatives, meaning contracts whose value depends on another variable, in this case U.S. interest rates. The bet was that those rates would keep falling.
The main instrument was swaps, or financial exchanges. Think of an exchange of payments: the AFP received a fixed rate and paid a variable rate. If rates fall, the deal pays off. If they rise, the AFP ends up paying more than it receives.
That is what happened. According to T13, the global inflation shock caused by the war with Iran and months of U.S. bond selloffs pushed rates up and drove down the market value of those contracts.
The timetable compounds the problem. A new regulation setting limits on derivatives risk will take effect on November 4, according to ADN Radio. To comply, the AFPs must unwind positions and pay counterparties, including Bank of America, Citigroup and other Wall Street banks.
The size of the bet was enormous. ADN Radio, citing Bloomberg, said the notional value (the reference amount used to calculate payments) reached almost US$700,000 million and stood at around US$525,000 million in August.
How does this affect your savings? The losses were concentrated in Fund E, the most conservative fund, designed for people nearing retirement. That fund has recorded an average decline of 10.4% this year, with a drop of 4.9% in September alone. In the same month, Fund C lost 3.1% and Fund D, 4.2%.
"They will have to absorb the losses at some point, and that is going to hurt," Felipe Alarcón, chief economist at insurer Euroamerica, told Bloomberg. Iván Riveros, a Citigroup strategist, summed it up by saying the AFPs had gone "from a comfortable position in U.S. interest rates to an uncomfortable one."
The Superintendency of Pensions told Bloomberg that the funds had been given an extended period to prepare and had already "adjusted a substantial portion of the excess to the new limits." It added that the AFPs have a fiduciary duty to use that leeway "in the best interests of members."
The sources do not specify how much of the loss has already been realized or how much remains to be unwound. The next milestone is November 4, when the regulation takes effect and the administrators must comply with the new limits.
