Colombia Peso Bond Yields Fall to Record Low on Rate-Cut Outlook

Colombia’s peso bonds rose, pushing yields to a record low, amid speculation the central bank will lower borrowing costs as early as this month to help boost growth as the economy slows.

The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 fell two basis points, or 0.02 percentage point, to 6.5 percent, according to the central bank. That’s the lowest level on a closing basis since the securities were first issued in 2009.

Colombia’s central bank forecasts growth of 4.2 percent in the second quarter, bank board member Juan Pablo Zarate told reporters in Cartagena today. While the central bank analyzes economic data in its entirety, lower-than-forecast growth increases the chances of a rate cut, he said. The national statistics agency is slated to release its second quarter gross domestic product report Sept. 20.

“People are betting on a rate cut, but what is hard to pinpoint is the timing,” said Daniel Lozano, the head analyst at Serfinco SA brokerage in Bogota.

Policy makers will cut the overnight lending rate a quarter percentage point to 4.5 percent at the Sept. 28 meeting and then leave it at that level through the remainder of the year, according to the most frequent forecast in a central bank survey of analysts published yesterday. Banco de la Republica lowered borrowing costs at each of its past two meetings as the weakening global economy damped export demand.

Room to Cut

Investors will also be watching for Sept. 19 reports on industrial output and retail sales to “get a better sense of when that rate cut may come,” Lozano said.

In a presentation in Cartagena, Zarate also said Banco de la Republica has room to cut rates should the outlook for global economic growth worsen.

“If global growth worsens and there’s capital flight, what we can do is lower the interest rate, to facilitate domestic spending,” Zarate said. “I think we are at a good starting point to be able to respond to any external shock.”

Colombia’s inflation will end this year at 3 percent, according to the median estimate in the central bank survey, up from the previous month’s forecast of 2.95 percent. The central bank targets inflation between 2 percent and 4 percent.

The peso rose after the Federal Reserve said it will buy mortgage securities and keep interest rates “exceptionally low” through the middle of 2015 to bolster the world’s biggest economy.

The local currency climbed 0.5 percent to 1,793.83 per U.S. dollar. It has jumped 8.1 percent this year.

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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