Chile's Pension Funds Catch a Break as US Yields Slide, Trimming Swap Losses

October rebound and what drove it

Chile's most conservative pension option, the E fund, climbed 3.2% in October, leaving it down 7.6% for 2026 and reversing some of September's 4.9% hit. Even the typically more changeable C and D funds rose, by 1% and 1.8%.

According to Roberto Fuentes, who leads research at the AFP Association, "The performance of these funds was supported by a decline in long-term interest rates in both Chile and the United States." He added that in the US, "concerns about the outlook for technology companies, along with expectations for the economy and monetary policy, contributed to increased demand for fixed-income instruments."

How US yields fed into swaps and losses

Ten-year Treasury yields topped out at 5.3% on Oct. 5 and fell back below 5% last week, which narrowed losses on receiver swaps tied to US rates. The shift offered relief after earlier bets on lower US rates went the other way and drew political heat.

Last month, pension regulator Joaquín Cortez told lawmakers that as of Oct. 20 mark-to-market losses were roughly $7 billion, versus $10.1 billion at September's close. If US yields keep easing, those losses would shrink further. The industry says the swap positions aim to secure retirement income over time rather than chase speculative gains, and association head León Fernández de Castro has noted that peers abroad use similar long-duration strategies.

The rulebook across the region

The losses have triggered a regulatory probe in Chile and questions about risk for savers nearing retirement. Elsewhere, the guardrails differ. In Peru, the most conservative option, Fund 0, cannot use interest rate swaps, invests only in short term sol-denominated debt, and must cap portfolio duration at one year. Fund 1, also low risk, may use swaps solely for hedging or to cut portfolio risk rather than to seek returns as in Chile.

Colombia allows derivatives for hedging and, under specific requirements, for investment. Even so, "we don't have that kind of exposure here," said Andrés Velasco, who leads Colombia's pension fund association. "Regulation in Colombia has focused on limiting portfolios according to their risk profile."

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Mexico took a different path in 2019 with generational funds that assign workers largely by birth year, so the portfolios automatically shift to a more conservative stance as members near retirement. Chile is set to adopt a similar approach in April.

Returns check and why it matters for your portfolio

The contrast shows up in performance. During the 12 months ended September, Peru's Fund 0 slipped 0.12%, while Chile's E fund fell 9.38%. In Colombia, conservative funds returned about 2.5% over the 12 months through August. For Mexico, the fund covering workers born between 1960 and 1964 delivered a weighted average nominal return of 5.26% over the 12 months through September 2026, with annual inflation at 3.62% in early October.

Why does that matter? Colombia and Mexico's systems posted year over year gains, while Peru was roughly flat, underscoring how rules and rate exposure shape outcomes. The takeaway for portfolios with Chile exposure: when long rates swing, swap heavy strategies move quickly, for better or worse.

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