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Colombia’s Bonds Jump as 2012 Financing Needs to Fall

Dec. 21 (Bloomberg) -- Colombia’s peso bonds jumped, pushing yields to fall the most in two weeks, after the government said it plans to raise less money in the local bond market in 2012, and expects next year’s budget deficit to narrow more than it originally expected, as strong economic growth boosts tax revenue.

Colombia plans to auction 18.4 trillion pesos ($9.5 billion) of bonds in the local market next year, according to a revised 2012 financing plan announced yesterday by Finance Minister Juan Carlos Echeverry. He spoke at a conference in Bogota after the close of trading.

In June, the government forecast it would need to raise 20 trillion pesos in the domestic market. The consolidated budget deficit, which includes states, municipalities and state-run companies, should fall to 1.8 percent of gross domestic product in 2012 from a projected 2.9 percent of GDP this year, Echeverry said citing the nation’s revised 2012 financing plan.

“The economy has been very dynamic,” Echeverry told investors and reporters. “We are reducing our deficit even as we invest more.”

Quickening economic growth and rising foreign direct investment are bolstering tax revenue and reducing the government’s financing needs. Echeverry said that tax collection surged 25 percent to 84 trillion pesos this year and expects tax collection to rise to 88 trillion pesos in 2012.

‘Good Fundamentals’

The yield on the nation’s 10 percent bonds due in July 2024 fell three basis points, or 0.03 percentage point, to 7.58 percent, according to the stock exchange. That’s the biggest decline since Dec. 7. The bond’s price rose 0.267 centavo to 119.111 centavos per peso.

“The announcements are very important in terms of Colombia’s good fundamentals,” said David Moreno, a fixed-income analyst at Bogota-based brokerage Cia. De Profesionales de Bolsa SA.

Latin America’s fifth-largest economy may grow as much as 6 percent in 2011, the fastest pace since 2007, according to the central bank. Echeverry said that Colombia’s economy may grow 5.1 percent in 2012.

The economy expanded 6 percent in the third quarter, according to the median estimate of 30 economists surveyed by Bloomberg. The national statistics agency is slated to release the quarterly GDP report tomorrow.

Overseas Bonds

Speculation strong third quarter growth will lead the central bank to raise the overnight lending rate further is paring some of the gains in the benchmark securities today, according to Moreno.

Policy makers in November raised the key rate a quarter percentage point to 4.75 percent, citing the need to bolster the central bank’s credibility after “strong” growth drove up inflation expectations, according to minutes of the meeting. Banco de la Republica left the rate unchanged in the Dec. 16 meeting.

The strong growth, more than investment-grade rivals Brazil and Mexico, has given the government a “healthy amount” of cash holdings to pay for bonds maturing overseas at the beginning of next year, Echeverry said. The government is in no hurry to sell $3 billion of bonds it plans to issue overseas in 2012, he added.

A military offensive against guerrilla groups has increased security in the last decade in the Andean nation, opening up vast swathes of the countryside for companies to explore for oil, coal and gold. Foreign direct investment may reach a record $12 billion this year, up from $9.5 billion in 2010, central bank chief Jose Dario Uribe said Nov. 11.

Budget Deficit

Congress in June passed legislation, known as the fiscal rule, that will allow the nation to capitalize on the resource boom, cut its budget deficit and create a fund to cushion the economy during crises. It targets a central government budget deficit of no more than 2.3 percent of gross domestic product in 2014 and 1.9 percent of GDP in 2018.

Colombia is targeting a central government budget deficit next year equal to 3 percent of GDP, Echeverry said.

The peso rose 0.1 percent to 1,931.88 per U.S. dollar, from 1,934.25 yesterday. The currency has weakened 1.3 percent this year.

To contact the reporter on this story: Andrea Jaramillo in Bogota at

To contact the editors responsible for this story: Joshua Goodman at; David Papadopoulos at

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