Colombian Peso-Bond Yields Decline to Record Low on Rate Outlook

Colombia’s peso bonds rose, pushing yields to a record low, amid speculation policy makers will cut borrowing costs further to stimulate growth as inflation remains near the mid-point of the central bank’s target.

The yield on 10 percent peso-denominated debt due July 2024 fell two basis points, or 0.02 percentage point, to 6.53 percent, according to the central bank. That’s the lowest closing level since the securities were first issued in 2009.

Policy makers voted unanimously on Aug. 24 to cut the benchmark interest rate by a quarter percentage point to 4.75 percent, according to the minutes of the meeting released Sept. 7. The central bank next meets Sept. 28.

“We will likely see another cut this year” to 4.5 percent, said Santiago Melo, an analyst at Alianza Valores brokerage in Bogota. “With inflation under control, people will be watching for the next GDP report to get a sense on the timing of the cut.”

Banco de la Republica maintained its 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. Central bank co-director Carlos Gustavo Cano expects the economy to grow 3.8 percent this year, according to a presentation posted on the bank’s website. Colombia’s statistics agency is slated to release its second-quarter gross domestic product report on Sept. 20.

Peso Strengthens

Annual inflation was 3.11 percent last month, within the central bank’s 2 percent to 4 percent target.

Colombia’s peso gained 0.2 percent to 1,797.41 per U.S. dollar after erasing an earlier decline. It has jumped 7.9 percent this year, the best performance after the Chilean peso and the Hungarian forint among world currencies tracked by Bloomberg.

President Juan Manuel Santos said the government will continue to buy dollars in the spot market and asked that the central bank increase its own purchases of the greenback to stem the peso’s rally.

Santos’s Sept. 7 comments echoed those of Finance Minister Mauricio Cardenas, who said the previous day that the Treasury 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 on Sept. 7 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 dollar purchases to $700 million by the end of September, or an average of $28 million a day. It bought $24.8 million today.

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