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Colombia Bond Yields Fall Most in a Week on Revised Tax Proposal

Colombian yields fell the most in a week after the government revised a proposal for taxes on foreigners’ bond profits, setting a levy of 14 percent and removing an option for policy makers to increase the rate.

The yield on the government’s 10 percent peso-denominated bonds due July 2024 fell two basis points, or 0.02 percentage point, to 6.27 percent, according to the central bank.

The government’s proposal to reduce the current 33 percent levy is intended to reduce yields on the peso bonds by luring overseas creditors, Public Credit Director Maria Fernanda Suarez said in an interview last month. By attracting more inflows, the tax cut would push further gains in the peso, going against Colombia’s bid to ease the currency’s rally, said Camilo Perez, the head analyst at Banco de Bogota SA, the nation’s second-biggest bank.

“The question now is if it will get approval from Congress given the concern over the exchange rate,” Perez said.

A previous version of the proposal called for cutting the tax rate to 12.5 percent while allowing for the levy to be raised to 25 percent should the government “determine that market conditions are favorable for attracting foreign portfolio investment.” The government has said it expects the tax bill to be approved by Congress by year-end.

The central bank and government stepped up dollar purchases this year to ease a rally in the local currency that policy makers say is threatening jobs in agriculture and industry by making exports more expensive in dollar terms.

Peso Falls

The peso declined 0.3 percent to 1,824.60 per U.S. dollar, paring its rally this year to 6.2 percent.

The central bank said Sept. 28 it was extending plans for dollar purchases and will buy a minimum of $3 billion between Oct. 1 and March 29 in amounts of at least $20 million per day.

Finance Minister Mauricio Cardenas has also said the government is buying dollars for its petroleum stability fund, in which some of the country’s oil royalties are invested. The fund will end the year with $1 billion in dollar holdings, compared with $500 million at the end of September, Cardenas said Sept. 28.

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