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Colombian Yields Drop to Record Low on Rate Outlook; Peso Falls

Colombia’s peso bond yields fell to a record on speculation policy makers will reduce benchmark borrowing costs next week to shore up a slumping economy.

The yield on the government’s 10 percent peso-denominated debt due in 2024 fell three basis points, or 0.03 percentage point, to 5.26 percent, according to the central bank. That is the lowest close since the securities were first issued in 2009. The price rose 0.27 centavo to 140.027 centavos per peso.

“Economic numbers are not looking good,” said William Florez, a fixed-income strategist at Helm Bank SA (PFBHELMB)’s brokerage in Bogota. “The central bank will need to lower rates at least once more.”

Banco de la Republica will cut the overnight lending rate by a quarter-percentage point to 4 percent on Jan. 28, according to 25 of 27 economists surveyed by Bloomberg. Two expect policy makers to leave the rate unchanged.

Colombian Finance Minister Mauricio Cardenas said today in an interview at the World Economic Forum in Davos, Switzerland, that he will argue for a rate cut to 4 percent at this month’s meeting.

Industrial output dropped 4.1 percent in November from a year earlier, the biggest decline since July 2009, the government said in a Jan. 18 report. That was weaker than all 21 forecasts compiled by Bloomberg.

Central bankers may lower the interest rate by an additional 25 basis points after this month’s cut if data continue to indicate a slowing economy, Florez said.

The peso weakened 0.2 percent to 1,780.50 per U.S. dollar. The currency touched 1,750.50 on Jan. 2, the strongest intraday level since July 2011.

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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