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Colombian Peso Bonds Fall as Flagging Growth Spurs Rate Concern

Colombia’s peso bonds declined, cutting into a fifth consecutive weekly gain, on speculation that policy makers will continue to reduce benchmark borrowing costs to boost flagging economic growth.

The yield on the government’s 10 percent peso-denominated debt due in 2024 rose two basis points, or 0.02 percentage point, to 6.62 percent at 10:52 a.m. in Bogota, according to the central bank. The yield is down 15 basis points in the past five days, the biggest rally since the week ended April 13. The price rose 1.372 centavos to 127.319 centavos per peso this week.

“Investors are taking some profits after the strong rally,” William Florez, an analyst at Helm Bank SA’s brokerage unit in Bogota, said by phone. “This week’s central bank report lowered growth expectations and that benefits the TES ’24s,” as the bonds are known, he said.

Florez expects the yield on the notes to fall to 6.5 percent by the end of this quarter, if not sooner.

Bonds extended their rally after the central bank unexpectedly cut interest rates a quarter percentage point to 5 percent on July 27. Annual inflation slowed to 3.11 percent in July from 3.2 percent the previous month, according to the median forecast of 24 economists in a Bloomberg survey. The national statistics agency is slated to release figures tomorrow.

The peso climbed 0.3 percent today to 1,785.56 per U.S. dollar, rising 0.3 percent on the week as well. The peso has appreciated 8.5 percent this year, the second-best performance among all currencies tracked by Bloomberg behind the Hungarian forint.

Colombia’s currency will probably end the year at 1,750 per dollar, Morgan Stanley analyst Daniel Volberg wrote in a report released from New York today. Previously, he had expected it to end the year at 1,800.

Volberg expects the central bank to cut its key lending rate to 4.75 percent by the end of the year.

To contact the reporter on this story: Drew Benson in New York at abenson9@bloomberg.net

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

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