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Colombia Peso Bonds Drop as Rebound Tempers Rate Cut Outlook

Colombia’s peso bonds fell, pushing yields up the most in seven weeks, after bigger-than-forecast gains in retail sales and factory output led traders to pare bets that the central bank will cut borrowing costs tomorrow.

The yield on the government’s 6 percent notes due in April 2013 increased ten basis points, or 0.10 percentage point, to 4.80 percent at the close of trading in Bogota, the biggest jump since July 3, according to the central bank. The price decreased 0.064 centavo to 100.714 centavos per peso.

Colombian industry expanded for the first time in four months in June, ending the contraction the central bank cited as one of the reasons for its decision to reduce borrowing costs last month. Industrial production rose 2.8 percent and retail sales expanded 4 percent from a year earlier, more than all the forecasts among 20 analysts surveyed by Bloomberg.

“Some investors will be willing to bet the central bank won’t be cutting rates,” William Florez, an analyst at Helm Bank SA’s brokerage unit in Bogota, said by phone.

Yields on the bonds due in April 2013 had fallen 65 basis points since July 27, when the central bank unexpectedly cut the overnight lending rate by a quarter-percentage point to 5 percent, through yesterday.

Policy makers will lower the overnight lending rate at tomorrow’s meeting by a quarter-percentage point to 4.75 percent, according to 28 of 32 economists surveyed by Bloomberg. The rest predict no change.

After yesterday’s data showed a rebound in production and retail, “Colombia again stands out in the region, and the peso will appreciate as capital flows into the country,” Florez said.

The peso gained 0.2 percent to 1,809.35 per U.S. dollar, extending its gain this year to 7.1 percent, the best performance among the world’s currencies tracked by Bloomberg after the Hungarian forint and the Chilean currency.

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