Nov. 3 (Bloomberg) -- Colombia’s peso bonds rose to their highest since May 2006 as bets inflation slowed last month boosted demand for the country’s fixed-rate securities.

The central bank’s Oct. 23 announcement that it will spend as much as 3 trillion pesos ($1.5 billion) through the end of the year to buy U.S. dollars and government peso bonds is also spurring gains in the securities, according to Julian Ramirez, head analyst at Bogota-based brokerage Proyectar Valores SA.

The yield on Colombia’s 11 percent bonds due in July 2020 fell seven basis points, or 0.07 percentage point, to 8.32 percent at 4:06 p.m. New York time, according to Colombia’s stock exchange. The price rose 0.562 centavo to 118.441 centavos per peso. The yield on the peso bonds, known as TES, has dropped 27 basis points since Oct. 23.

“Yields should continue to drop,” said Ramirez. “Not only has the central bank said it will buy TES in the market but food prices will help” ease inflation pressures. He forecasts the yield will fall to 8 percent by year-end.

Colombia’s annual inflation slowed to 2.95 percent in October from 3.21 percent in September, according to the median estimate of 13 economists in a Bloomberg News survey. That’s below the central bank’s 2009 target of 4.5 percent to 5.5 percent. The national statistics agency is scheduled to release the inflation report on Nov. 5.

Venezuelan Bolivar

The peso erased an earlier decline, advancing 0.3 percent to 1,987.10 per U.S. dollar, from 1,993.30 yesterday, when Colombian markets were closed for a national holiday. The peso has dropped 3.4 percent in the past month, the worst performance against the dollar among 26 emerging-market currencies tracked by Bloomberg.

Venezuela’s bolivar plunged 3.6 percent to 5.75 per dollar in unregulated parallel market trading from 5.55 yesterday, traders said. That’s the weakest level since September. Venezuelans buy dollars in the parallel market when they can’t get government authorization to purchase them at the official exchange rate of 2.15 per dollar.

The South American country remains committed to shoring up the bolivar in the unregulated market so that the gap over the official exchange rate is at a maximum of 60 percent by the end of the year, Central Bank President Nelson Merentes said in an interview yesterday.

‘Flooding the Market’

The central bank has overseen about $11.3 billion of bond sales from the government and state oil company Petroleos de Venezuela SA, known as PDVSA, this year to meet demand for dollars in the local market. PDVSA is considering another bond sale in the short term, company President Rafael Ramirez told reporters during a conference today in Porlamar, Venezuela.

“Venezuela is flooding the market with bonds and they’ve announced more are coming,” said Boris Segura, a Latin America analyst at RBS Securities Inc. in Stamford, Connecticut. “Risk aversion is on the rise and given Venezuela is saturating the market, Venezuelan bondholders are seeing little demand for the securities. Since they can’t get dollars by selling the bonds they turn to the parallel market, pressuring it.”

In Chile, the peso fell 0.5 percent to 531.1 per dollar, from 528.45 yesterday. The yield for a basket of the country’s 10-year peso bonds in inflation-linked currency units, called unidades de fomento, rose one basis point to 3.13 percent, according to Bloomberg composite prices.

Argentina’s peso advanced 0.3 percent to 3.8149 per dollar from 3.8242 yesterday. The yield on the nation’s inflation- linked peso bonds due in 2033 rose two basis points to 11.55 percent, according to Bloomberg prices.

Peru’s sol fell 0.3 percent to 2.91 per dollar, from 2.9025 yesterday. The yield on Peru’s 8.6 percent sol-denominated bond due August 2017 fell five basis points to 4.89 percent, according to Citigroup Inc.’s local unit.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

Last Updated: November 3, 2009 16:46 EST