Inflation Breakevens To Come In

We believe Chilean inflation breakevens are set for a correction after rallying since the beginning of 2011 on the back of surging inflation expectations. The one-year breakeven contract, representing the expected yield differential between fixed rate and inflation-linked interest rate swaps over a 12-month time horizon, hit 4.6% on March 10, but in our view inflation is unlikely to reach this level given the central bank's increasingly hawkish policy stance.

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