Colombia Peso Bond Yields Fall to Four-Month Low on Rate Outlook

Colombia’s peso bonds rose, pushing yields on benchmark securities to a four-month low, as speculation the central bank will raise interest rates further led to increased demand from investors seeking higher returns.

The yield on the nation’s 10 percent bonds due in July 2024 fell seven basis points, or 0.07 percentage point, to 7.27 percent, according to the stock exchange. That’s the lowest level on a closing basis since Sept. 9. The price rose 0.642 centavo to 121.837 centavos per peso.

“Consumer demand continues to drive economic growth and inflation expectations remain under control,” said Pedro Ospina, a fixed-income analyst at Interbolsa SA, the country’s biggest brokerage. “Given the carry trade, bonds are offering good returns. We’re seeing demand across the whole curve” of peso bonds, he said.

Colombian policy makers last month left the overnight lending rate unchanged, after raising it in November a quarter percentage point to 4.75 percent. Most economists in a central bank survey published Jan. 12 forecast Banco de la Republica will increase the key rate to 5.5 percent by the end of the year. The next monetary policy meeting is slated for Jan. 30.

The carry trade refers to the practice in which investors borrow funds in a country with lower borrowing costs and buy assets where interest rates are higher.

Colombia’s borrowing costs fell at an auction today of fixed rate securities. The government sold peso bonds due August 2026 to yield 7.49 percent, the Finance ministry said in a statement, down from 7.65 percent at the last auction on Jan. 11. Colombia also sold bonds due October 2018 to yield 6.89 percent, down from 7.1 percent, while the yield on the October 2015 securities fell to 6.28 percent from 6.5 percent, according to the statement.

Colombia’s peso erased an earlier drop after the Federal Reserve extended its pledge to hold its target for the federal funds rate low until late 2014 from a previous pledge to keep it in place until mid-2013.

The peso advanced 0.1 percent to 1,812.65 per U.S. dollar, from 1,814 yesterday. The peso has jumped 6.9 percent in 2012.

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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