Foreign investors continue to cautiously add Peru Soberanos positions and October was no exception. Foreign holdings of Soberanos increased by PEN1.3bn to PEN65.2bn, representing about 51% of the total amount outstanding. During the month, pension funds and foreigners appeared to be the main buyers, and banks (including the central bank) were the main sellers, but the unwinding of repo positions between pension funds and the central bank may have impacted the numbers. Foreigners seem to have extended duration along the curve, especially from Soberanos 32s to 42s, with the 32s experiencing the largest increase in holdings. The position switch seemed to work; the curve flattened, with some of the long bonds displaying the largest yield declines. The average yield compression along the curve was c.50bp. The recent underperformance of the front end of the curve was a result of the central bank increasing the reference rate by 50bp at each of the latest three policy meetings. The BCRP will keep a close eye on inflation, which remains a concern, but expects it to converge to the target band within the next 12 months. That expectation could guide the pace of future reference rate hikes.