Colombia’s Peso Bonds Head for Weekly Gain on Paired CPI Bets

Colombia’s peso bonds headed for their biggest weekly gain since October, pushing yields lower, as investors paired bets on quickening November inflation.

The yield on the government’s benchmark 11 percent bonds due 2020 has dropped 14 basis points in the last week, or 0.14 percentage point, to 7.38 percent at 11:41 a.m. New York time, according to Colombia’s stock exchange. That’s its biggest decline since the week ended Oct. 8. The yield fell four basis points today. The bond’s price climbed 1.025 centavo in the last week to 124.228 centavos per peso.

Speculation heavier-than-normal rains will fuel inflation by damaging crops and driving up food prices pushed yields on the benchmark bond due July 2020 to a four-month high of 7.59 percent on Nov. 30. Higher inflation damps returns on fixed-rate bonds, prompting investors to demand a higher yield.

“Inflation probably rose in November, but the impact from heavy rains likely won’t be seen until December and the first quarter of 2011,” said David Aldana, head analyst at Bogota- based brokerage Ultrabursatiles SA. “The market was overpricing an increase in November inflation and now it’s paring some of those bets.”

Annual inflation quickened to 2.5 percent in November from 2.33 percent the previous month, according to the median estimate of 13 economists surveyed by Bloomberg. The national statistics agency is slated to release the monthly inflation report tomorrow. The central bank targets inflation this year between 2 percent and 4 percent.

At least 140,000 hectares (345,948 acres) in Colombia were flooded, which has led to increases in the price of farm goods such as potatoes, rice and corn, Agriculture Minister Juan Camilo Restrepo said last month.

Colombia’s peso strengthened 0.9 percent to 1,889 per U.S. dollar, from 1,906.20 yesterday. It has gained 1 percent so far this week, its best performance since the period ended Aug. 6.

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

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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