Colombian Peso Bond Yields Fall to One-Week Low on Rate Increase

Colombia’s peso bonds gained, sending yields on benchmark securities to a one-week low, after the central bank raised interest rates to cool the fastest expansion since 2006 and keep inflation in check.

The yield on the government’s 10 percent peso bonds due July 2024 fell two basis points, or 0.02 percentage point, to 7.35 percent, according to the central bank. That’s the lowest level on a closing basis since Feb. 17. The price rose 0.147 centavo to 121.026 centavos per peso.

Banco de la Republica on Feb. 24 raised the overnight lending rate a quarter percentage point to 5.25 percent, as forecast by 22 of 36 economists surveyed by Bloomberg. That’s the ninth increase since January 2011 as the expansion threatens to quicken annual inflation from 3.54 percent in January.

“Bonds are reacting to the bank’s rate increase,” said Daniel Velandia, head analyst at Correval SA brokerage in Bogota. “For now it seems inflation expectations are easing. We’ll have to wait and see how inflation behaves this month.”

Policy makers said in their statement on Feb. 24 that they anticipate the rate increases will help drive investors’ inflation expectations to the mid-point of the 2 percent to 4 percent target range.

The peso gained, erasing an earlier drop. It rose 0.2 percent to 1,772.01 per U.S. dollar. It touched 1,765.80 on Feb. 24, the strongest intraday level since Aug. 17. The currency has advanced 9.4 percent this year.

The central bank also said Feb. 24 that it will prolong daily dollar purchases as it seeks to ease the currency’s rally. Banco de la Republica will extend the program of daily purchases of a minimum of $20 million in auctions begun Feb. 6 to at least Aug. 4. The bank had initially said the program would last at least three months.

“The central bank’s intervention is moderating the peso’s strengthening trend as it reduces the attractiveness” of betting the peso will gain in the short term, Velandia said.

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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