Colombian Peso Bond Yields Hold at Record; Currency Advances

Colombia’s peso bond yields held at a record low on speculation the central bank will lower borrowing costs next week to buoy growth in the Andean economy.

The yield on the government’s 10 percent peso-denominated debt due in 2024 was little changed at 5.26 percent, according to the central bank, remaining at the lowest close since the securities were first issued in 2009.

Banco de la Republica will cut the overnight lending rate by a quarter-percentage point to 4 percent on Jan. 28, according to 28 of 30 economists surveyed by Bloomberg. The other two expect policy makers to leave the rate unchanged.

“The market has been pricing in that rate cut,” said Daniel Velandia, the head analyst at Correval SA brokerage in Bogota. He forecasts the yield will fall to as low as 5.2 percent should policy makers lower borrowing costs this month.

Economists are betting that policy makers will act to bolster growth as economic data show signs of a slump. 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.

Colombian bonds have also rallied as President Juan Manuel Santos cut taxes on overseas investors’ earnings from domestic securities to 14 percent from 33 percent as of Jan. 1 to help boost demand and lower borrowing costs. Yields on the bonds due 2024 have dropped 40 basis this month.

The yield differential between the locally issued notes due in 2024 and similar-maturity peso notes sold on international markets narrowed to a record-low 86 basis points on Jan. 17 from 2.18 percentage points on Nov. 14.

The peso erased an earlier decline, gaining 0.1 percent to 1,779.67 per dollar at the close of trading in Bogota.

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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