Colombia Yields Fall Before Rate Decision; Peso Little Changed

Colombia’s peso bond yields fell on speculation the central bank may cut the target lending rate at this week’s policy meeting.

The yield on the government’s 7 percent peso-denominated bonds due in May 2022 fell one basis point, or 0.01 percentage point, to 5.99 percent, according to the central bank. It fell to 5.96 percent on Oct. 19, the lowest level on a closing basis since the securities were first issued in May.

Twenty-eight economists surveyed by Bloomberg predict the overnight lending rate will remain unchanged after the Oct. 26 meeting, while four expect a reduction to 4.5 percent.

“Traders are cautious ahead of the meeting,” said Marisol Torres, an analyst at Bogota-based Helm Bank SA. (PFBHELMB) “Some expect another cut this month given the recent unfavorable economic data.”

Rate decisions will depend on global growth and the domestic economy, Colombia’s central bank said in minutes of its Sept. 28 meeting that were published Oct. 12. Policy makers held the target lending rate at 4.75 percent after two cuts since June from 5.25 percent.

Industrial production fell 1.9 percent in August, compared with a median forecast calling for a 1.1 percent increase. Retail sales rose 1.2 percent that month, trailing the median projection of a 1.7 percent expansion. Colombia’s exports fell 7.6 percent in August.

Banco Bilbao Vizcaya Argentaria SA (BBVA) abandoned its Aug. 24 recommendation to bet on gains in the benchmark peso bonds due July 2024 following a “substantial rally at the long end of the Colombian curve,” BBVA strategists Alvaro Vivanco and Fernando Palma wrote in a note to clients today. Yields on the peso securities have fallen 1.54 percentage points this year to 6.06 percent today.

The peso was little changed at 1,816.50 per U.S. dollar after three straight days of declines. The currency has rallied 6.7 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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