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Colombia Bonds Hold Near Record Low on Lower CPI, Rate Outlook

Yields on Colombia’s peso bonds held near a record low after economists lowered their 2012 inflation forecasts and said they expect additional cuts in borrowing costs this year, buoying demand for the fixed-rate securities.

The yield on the government’s 10 percent peso-denominated debt due in 2024 closed little changed at 6.64 percent, according to the central bank. It fell to 6.60 percent on Aug. 2, its lowest level on a closing basis since the securities were first issued in 2009.

Colombia’s peso bonds have rallied since the central bank unexpectedly lowered the overnight lending rate a quarter percentage point to 5 percent on July 27, with the yield on the benchmark 2024 bond falling 13 basis points. Policy makers will cut the rate to 4.75 percent this month and to 4.5 percent in February, according to the most frequent forecast among economists surveyed by the central bank for an Aug. 10 report.

“Given the good inflation readings and data showing the economy is slowing, the chances of rate cuts to 4.5 percent by year-end are rising,” said Daniel Velandia, the head analyst at Correval SA brokerage in Bogota. “Analysts continue to lower their inflation bets, which is also helping bonds.”

Annual inflation will end this year at 2.95 percent, according to the median estimate in the central bank survey of 38 economists, down from the previous month’s forecast of 3.08 percent. Policy makers target inflation between 2 and 4 percent this year.

Banco de la Republica last month lowered its 2012 economic growth forecast to a range of 3 percent to 5 percent, from its previous estimate of 4 percent to 6 percent, following reports showing industrial output fell for a third straight month in May, while exports slid 1.9 percent in June from a year ago.

The peso weakened 0.2 percent today to 1,793.80 per U.S. dollar, paring this year’s gain to 8.1 percent, the best performance among 170 currencies tracked by Bloomberg.

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