Colombia Yields Decline for Third Day on Plan to Reduce Tax Rate

Colombia’s peso bond yields fell for a third day after the government revised a proposal for taxes on foreigners’ bond profits, reducing a levy of 14 percent and removing a means for policy makers to increase the rate.

The yield on the 10 percent peso-denominated bonds due in July 2024 fell three basis points, or 0.03 percentage point, to 6.20 percent, the lowest on a closing basis since Nov. 8, according to the central bank.

“We should continue to see yields fall gradually,” said Daniel Velandia, the head of research at Correval SA brokerage said by phone from Bogota. He forecast the yield on the bond due in July 2024 will fall to below 6 percent at the beginning of next year if Congress approves the tax initiative.

The government is proposing cutting the tax on foreigners’ bond profits from about 33 percent in a bid to lure more overseas investors to the debt market and lower local borrowing costs. The new law would also exempt returns derived from currency gains.

Colombia’s local bond yields will fall to a record low relative to overseas debt if Congress passes the tax initiative, Public Credit Director Maria Fernanda Suarez said in an interview today.

The yield differential between peso bonds sold domestically and abroad will narrow by about 1 percentage point should the measure be approved, Suarez said. Colombia’s local notes due in 2024 yield 1.97 percentage points more than similar-maturity international debt, up from a record low 1.28 percentage points on Oct. 12.

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 Congress to approve the tax plan by year-end.

The peso appreciated 0.3 percent to 1,818.46 per U.S. dollar, extending its rally in November to 0.8 percent, the biggest among 25 emerging-market currencies tracked by Bloomberg.

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