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Colombia Peso Bond Yields Rise After Lending Rate Kept Unchanged

Colombia’s peso bond yields rose the most in seven months after the central bank left the overnight lending rate unchanged, citing the expanding economy amid growing domestic demand.

The yield on the 10 percent peso-denominated bonds due in July 2024 climbed seven basis points, or 0.07 percentage point, to 6.10 percent, according to the central bank. That is the biggest increase on a closing basis since March 14. The price dropped 0.726 centavo to 132.011 centavos per peso.

“The central bank’s wording is more positive when it comes to the global economy,” said Catalina Silva, a fixed-income analyst at Cia. de Profesionales de Bolsa in Bogota. “The curve is adjusting after the rate decision.”

Banco de la Republica, led by Jose Dario Uribe, held its benchmark interest rate at 4.75 percent on Oct. 26, in line with the forecasts of 28 of 35 analysts surveyed by Bloomberg. Seven analysts forecast a quarter-point reduction. Uribe said the decision to keep borrowing costs unchanged for a second month wasn’t unanimous.

Policy makers have cut the key rate twice since June from 5.25 percent. Silva predicts the central bank will lower the lending rate a quarter percentage point to 4.5 percent by year-end to buoy growth in the Andean economy.

“Data in September, especially regarding industrial output, will be key in determining if another cut is needed,” Silva said.

Output Data

Industrial production fell 1.9 percent in August, compared with a median forecast calling for a 1.1 percent increase. Retail sales rose 1.2 percent that month, trailing the median projection of a 1.7 percent expansion. The national statistics agency is slated to release the next report on production and retail sales on Nov. 20.

The peso slipped 0.1 percent to 1,830.42 per U.S. dollar, paring its rally this year to 5.9 percent.

The Colombian Treasury bought $641 million with oil royalties in the year through Oct. 18, and this figure will rise to about $1 billion by the end of the year, Finance Minister Mauricio Cardenas, who is also president of the central bank’s board, told reporters after the central bank’s meeting.

The Treasury has the option of buying more dollars above this amount using its cash holdings if it chooses to do so, Cardenas said.

The central bank purchased an average of $27 million daily in the spot market since the last meeting on Sept. 28, Uribe said.

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