Colombia’s peso bond yields posted their biggest weekly drop since May 2011 as speculation inflation slowed in September and the central bank will lower interest rates boosted demand for the fixed-rate securities.
The yield on the government’s 10 percent peso-denominated bonds due in July 2024 fell 11 basis points, or 0.11 percentage point, to 6.15 percent, according to the central bank, the lowest level since the debt was first sold in 2009. The yield dropped for a third week, declining 20 basis points.
“Inflation will remain under control, creating a favorable environment for the fixed-income market,” said Juan Pablo Espinosa, the head of economic research at Bancolombia SA, the country’s biggest bank. “There is room for gains across the curve in the next month.”
Annual inflation slowed to 2.95 percent in September, according to the median forecast of 27 economists surveyed by Bloomberg. The national statistics agency is slated to release the report at 7 p.m. today in Bogota. That would be the first time since April 2011 that inflation slowed to below the midpoint of the central bank’s 2 percent to 4 percent target.
While the outlook for consumer prices will still favor long-term bonds, shorter-term debt will advance as the central bank reduces borrowing costs further, Espinosa predicts.
Banco de la Republica held the overnight lending rate at 4.75 percent on Sept. 28 after a cut of a quarter-percentage point in August. Espinosa forecasts policy makers will lower the rate by another 25 basis points to 4.5 percent this year.
The search for higher returns in emerging markets as interest rates in the U.S. and Europe stay near zero is also helping fuel a rally in Colombia’s peso bonds, said Felipe Campos, the head analyst at brokerage Alianza Valores in Bogota.
“There is an aggressive search for yield,” said Campos.
The peso declined 0.1 percent to 1,795.90 per U.S. dollar, paring its gain this week to 0.3 percent. The currency has rallied 7.9 percent in 2012.