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Peru Sol Bonds Fall as Investors Extend Duration on CPI Outlook

Oct. 22 (Bloomberg) -- Peru’s benchmark sol-denominated bonds fell, pushing up yields to a three-week high, as investors bought longer-duration securities on bets the fastest economic growth in South America won’t stir inflation pressures.

The yield on the nation’s benchmark 7.84 percent sol-denominated bond due August 2020 rose three basis points, or 0.03 percentage point, to 4.27 percent at 12:58 p.m. in Lima, according to prices compiled by Bloomberg. The price declined 0.2 centimo to 123.31 centimos per sol.

Investors are buying higher-yielding bonds in Peru on bets the central bank will keep its benchmark interest rate at 4.25 percent as inflation stays under control even as the economy expands 6 percent this year, said Enrique Alvarez, the head of Latin America fixed-income research at IdeaGlobal.

“It’s quite simply a function of capturing a little more yield for a longer period of time,” Alvarez said in a phone interview from New York. “Growth is still quite good in comparison to the rest of Latin America, but there are no hurdles or obstacles thrown up by that.”

The yield on the nation’s August 2031 sol bond fell two basis points to 5.12 percent, according to prices compiled by Bloomberg.

Inflation was low in the first half of October and the annual rate will probably return to policy makers’ target range this year, central bank President Julio Velarde told Congress last week.

Consumer prices rose 0.54 percent last month and climbed 3.74 percent from a year earlier, the national statistics agency said Oct. 1. The central bank targets annual inflation of 2 percent plus or minus 1 percent.

Peru will be South America’s fastest growing economy in 2012 and 2013, expanding 6 percent and 5.8 percent respectively, according to the International Monetary Fund.

The sol appreciated 0.1 percent to 2.5770 per U.S. dollar, according to Deutsche Bank AG’s local unit.

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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