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Peru Bond Yields Rise to Three-Week High on Inflation Outlook

Peruvian bonds fell, pushing up yields to a three-week high, amid speculation above-target inflation will lead the central bank to raise interest rates.

The yield on the nation’s benchmark 7.84 percent sol-denominated bond due August 2020 climbed two basis points, or 0.02 percentage point, to 5.21 percent at 2:37 p.m. in Lima, according to prices compiled by Bloomberg. The security’s price fell 0.14 centimo to 117.32 centimos per sol.

Investors are speculating that “inflation will still be above the central bank’s target range at the end of this year, prompting the bank to increase its benchmark rate,” said Diego Alvarez, a trader at Banco Internacional del Peru in Lima.

Consumer prices rose 0.5 percent last month, climbing 4.1 percent from a year ago, the national statistics agency said May 1. Analysts see inflation slowing to 3 percent this year, the central bank said May 11 a day after keeping its benchmark rate unchanged for a 12th month. The central bank targets inflation in a range of 1 percent to 3 percent.

Scotiabank Peru raised its 2012 forecast for annual inflation to 3.3 percent from 3 percent previously amid food and fuel price increases and rising wages, according to a May 14 report.

The sol was unchanged at 2.67 per U.S. dollar at today’s close, according to Deutsche Bank AG’s local unit.

The central bank didn’t buy or sell dollars in the spot market today.

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