Rising US Treasury yields collide with Chile's capital market charm offensive

The 10-year US Treasury yield reaching its highest level since 2007 — brushing 5.04% — imposed its logic on Chilean and global markets today, but what truly revealed itself over the course of the session was the tension that external datapoint exposes with the domestic agenda: Chile arrives in London to court international investors with a capital markets reform just as the global cost of money threatens to make any financing promise more expensive.

ChileDay in the world's financial capital brought together local and foreign investors around the MK4 proposal, with Finance Minister Jorge Quiroz taking center stage. Beyond reiterating the government's goal of quadrupling the pace of investment growth, Quiroz added an element notable for its symbolic weight: the need to "restore dignity to private activity," a direct signal to a business community that has spent years feeling besieged by regulations, labor reforms, and an adverse political cycle. Carlos Ruiz de Gamboa, EVP of Santander CIB Chile, was even more explicit in describing the local capital market as the best in its history, though he acknowledged that unemployment remains one of the country's great structural problems. S&P Sovereign Ratings Director Constanza Pérez Aquino aligned with the Central Bank in projecting more favorable conditions for 2027 and 2028, conditional on the materialization of investments and the streamlining of the permitting system.

The centerpiece of that conversation is Fonavi, the national housing fund partially modeled on the Fannie Mae scheme in the United States, which will be administered by BancoEstado and aims to finance around 150,000 homes over four years through the purchase of mortgage loans from financial institutions. The chair of the CMF defended the measure by noting that it could benefit minority shareholders by providing greater liquidity. However, the initiative has generated substantive debate: economists warn that stimulating demand without resolving land scarcity and permitting bottlenecks could simply translate the benefits into higher prices. The Development Bank of Latin America and the Caribbean (CAF) backed the agenda by announcing US$6 billion in financing for Chile over the next four years, including technical support to BancoEstado in implementing Fonavi, along with rail infrastructure and water resources.

The backdrop that lends greater urgency to this entire financial architecture is the labor market. Unemployment reached 9.5% in the quarter ended in July, its highest level in five years, with nearly 981,000 people out of work and a cumulative loss of 170,000 jobs since March. Former Labor Minister Giorgio Boccardo stated that Chile is destroying jobs for the first time in 15 years excluding the pandemic — a diagnosis the Kast government disputed on causality but not on the numbers. The administration itself is preparing an emergency employment plan aimed at generating more than 25,000 additional jobs in the fourth quarter, with an announcement scheduled for early October — deliberately timed to counter what it anticipates will be negative unemployment and Imacec data for August. SOFOFA, for its part, presented its own agenda of five reforms including the replacement of the severance-by-years-of-service system and the universalization of daycare, while its internal analysis estimates that cutting the corporate tax rate by four percentage points would generate at least 80,000 direct jobs. Universal daycare, paradoxically, faces its own political crisis: the bill suffered a setback in the Senate due to a coordination failure within the ruling coalition, and the government is now negotiating with the Partido de la Gente to get it back on track in the Chamber of Deputies.

In markets, the dollar closed with a slight decline from its highs as copper rebounded, in a session where the Chilean bourse tracked Wall Street's drop but on unusually high volumes for September: nearly $260 billion traded, with more than 40% concentrated in four IPSA names. Inflationary pressure isn't letting up either: the exchange rate threatens to push cumulative CPI as high as 4.5%, with gasoline and diesel hikes forecast at $35 and $100 per liter respectively. Water utility Essbio outlined an investment plan of $374 billion through 2030 across three regions, a signal that the regulated private sector is moving forward on long-term horizons regardless of the political cycle. In mining, Collahuasi doubled its profits to US$673 million in the first half despite a 2.4% drop in production, reflecting how much the price of copper has done for margins even as volumes weaken. In mid-tier mining, the Rendic family, through Compañía Minera San Gerónimo, acquired the Chilean subsidiary of Canada's Mandalay Resources, adding the Casa de Piedra deposit with estimated resources of 36 million tonnes at 0.6% copper grade — a move that fits the consolidation thesis that could help Chile approach the production target of 6 million tonnes per year. On the financial front, a private equity fund managed by LarrainVial began liquidation by order of the CMF after being left with insufficient equity following the collapse of its investment in medical sample firm Medneo to a zero valuation.

What comes next merits attention on several simultaneous fronts. The Federal Reserve's decision — with a 95% probability of a rate hike priced in by the market — will determine whether the tightening of global financing deepens or finds a temporary ceiling, which directly affects the viability of the mortgage conditions that Fonavi seeks to improve. September 30 brings the unemployment data for the June-August quarter and October 1 the August Imacec; both figures will shape not only the political debate but also the fiscal room to maneuver in the 2027 budget, which must be submitted that same week and whose central tension — austerity versus reactivation — remains unresolved.

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