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Colombia’s Bond Yields Fall on Outlook for Lower Interest Rates

Yields on Colombia’s peso bonds dropped for a second day on speculation the central bank will lower borrowing costs as soon as this month to buoy the Andean country’s economic growth.

The yield on benchmark 10 percent peso-denominated debt due in July 2024 fell one basis point, or 0.01 percentage point, to 6.79 percent, according to the central bank. The bond’s price increased 0.11 centavo to 125.7980 centavos per peso.

“The economic cycle is shifting and the bonds continue to price in a new environment of lower rates and slowing inflation,” said Camilo Perez, the head analyst at Banco de Bogota, the nation’s second-biggest bank.

The yield on the July 2024 bonds has fallen 22 basis points this month to the lowest level on a closing basis since the securities were first sold in 2009.

The central bank held the overnight lending rate at 5.25 percent for a fourth straight month on June 29 as growth cooled and prices of commodity exports dropped. Policy makers will lower the target to 5 percent at the July 27 meeting, according to two of 10 economists surveyed by Bloomberg. The rest said the benchmark will hold steady.

Speculation that there will be a rate cut this year mounted after minutes of the central bank’s most recent meeting released July 13 showed more than one member of the seven-member board voted for a quarter-point interest-rate reduction last month and wanted the bank to begin a “relaxation phase.”

Central bank chief Jose Dario Uribe said July 17 the bank will probably lower and narrow the range of its forecast for 2012 Colombian economic growth from the current projection of 4 percent to 6 percent. The upper limit of the current range is no longer “reasonable,” he said.

The peso erased earlier gains, dropping 0.2 percent to 1,779.50 per dollar. The decline pared its advance this year to 8.9 percent, still the best performance among all currencies tracked by Bloomberg. Colombia’s markets are closed tomorrow for Independence Day.

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