Colombia Peso Bond Yields Fall on Interest Rate Outlook

Colombia’s peso bonds rose, pushing yields to a record low, on speculation the central bank will cut borrowing costs amid slowing inflation and decelerating economic growth.

The yield on Colombia’s 10 percent peso-denominated debt due in 2024 fell three basis points, or 0.03 percentage point, to 6.88 percent in Bogota, according to the central bank. That is the lowest close since the securities were first issued in 2009. The bond’s price rose 0.268 centavo to 124.939 centavos per peso.

“The market is seeing a rate cut in September or October,” said Jorge Cardozo, an analyst at Bogota-based brokerage Corredores Asociados. “Economic indicators are showing we’ll see slowing growth in the second quarter.”

The central bank’s next move is more likely to be an interest-rate cut rather than an increase, board member Cesar Vallejo said in an interview yesterday. That follows comments from central bank chief Jose Dario Uribe that policy makers will probably reduce their forecast for the country’s 2012 growth from the current range of 4 percent to 6 percent.

Banco de la Republica held the overnight lending rate at 5.25 percent for a fourth straight month on June 29 as growth cooled and prices of the country’s commodity exports dropped. Government reports in June showed industrial output and retail sales unexpectedly fell in April and the economy expanded 4.7 percent in the first quarter, the slowest pace since 2010.

“The whole board agrees that a weaker exchange rate would be desirable,” Vallejo said.

The peso gained 0.1 percent to 1,785.21 per dollar, extending its gain this year to 8.6 percent, the best performance among all currencies tracked by Bloomberg.

Auction TKs

Yields on Colombian peso bonds due in August 2026 fell to 7.01 percent at a government auction of fixed-rate securities today. The yield on the bonds declined from 7.08 percent at the auction on June 27.

Colombia also sold bonds due in May 2022 to yield 6.88 percent, down from 6.98 percent, while the yield on the June 2016 securities fell to 5.89 percent from 5.97 percent, the Finance Ministry said in a statement.

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