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Colombian Peso Bond Yields Fall to Record Low on Rate-Cut View

Colombia’s peso bonds rose, pushing yields to a record low, as speculation mounted that the central bank will cut borrowing costs further to stimulate growth in the Andean country.

The yield on 10 percent peso-denominated debt due July 2024 fell eight basis points, or 0.08 percentage point, to 6.55 percent, according to the central bank. That’s the lowest closing level since the securities were first issued in 2009.

Policy makers voted unanimously to cut the benchmark interest rate on Aug. 24 by a quarter percentage point to 4.75 percent as the weakening global economy damped export demand, according to the minutes of the meeting released today. The central bank maintained a 2012 growth forecast at a range of 3 percent to 5 percent, compared with the government’s forecast of 4.8 percent for this year.

“The minutes signal another rate cut,” said Alejandro Reyes, the head analyst at Ultrabursatiles SA brokerage in Bogota. “The fact that the decision was unanimous and the central bank expects the economy to grow at a slower pace than what the government forecasts is an indication we may see another cut” to 4.5 percent this year, he said.

The peso closed little changed at 1,800.09 per U.S. dollar. It earlier rose to 1,790.50, the strongest since Aug. 13, as speculation the U.S. Federal Reserve will opt for further stimulus buoyed demand for higher-yielding, emerging-markets assets. The currency gained 1.4 percent this week and is up 7.7 percent this year.

Dollar Purchases

President Juan Manuel Santos said today the Treasury will continue to buy dollars in the spot market to stem the peso’s rally, while asking that the central bank increase its own purchases of the greenback.

“We will continue to implement the measures needed,” Santos said in an e-mailed statement. Gains in the peso are a “constant worry” for the government, he said according to the statement.

Santos’s comments echoed those of Finance Minister Mauricio Cardenas who said yesterday the government will continue to supplement the central bank’s dollar purchase program. The government won’t announce the size of the Treasury’s dollar purchases, Cardenas said.

Colombia’s central bank today bought $35 million in the spot market, up from the minimum of $20 million a day the bank has said it will buy until at least Nov. 2. On Aug. 24 Banco de la Republica said it will boost its dollar purchases to $700 million by the end of September, or an average of $28 million a day.

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