Colombia Peso Bonds Gain as Economists Cut Inflation Estimates

Colombia’s peso bonds gained as waning inflation expectations boosted the appeal of the fixed-rate securities.

Yields on Colombia’s 7.5 percent peso-denominated debt due August 2026 fell six basis points, or 0.06 percentage point, to 6.99 percent, according to the central bank. The bond’s price rose 0.559 centavo to 104.439 centavos per peso.

Colombia’s inflation will end this year at 3.08 percent, according to the median forecast in a central bank survey published yesterday, down from an estimated 3.24 percent in the June survey. Annual inflation slowed to 3.20 percent in June, within the central bank’s 2 percent to 4 percent target.

“Investors have been cutting their inflation forecasts as the economy slows and you see bonds pricing in those bets,” said Daniel Lozano, an analyst at Serfinco SA brokerage in Bogota.

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.

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 a July 10 interview. 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.

The peso declined 0.1 percent to 1,787.43 per dollar, paring its gain this year to 8.5 percent, still the best performance among all currencies tracked by Bloomberg.

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