Colombian Bonds Rally After Surprise Consumer-Prices Drop

Colombian peso bonds rose, pushing yields down the most in seven weeks, as speculation mounted that policy makers will further reduce the target lending rate after consumer prices unexpectedly dropped in November.

The yield on the government’s 10 percent bonds due in July 2024 fell 11 basis points, or 0.11 percentage point, to a record low 5.83 percent at the close in Bogota, according to the central bank. The slide was the steepest since Oct. 19. The peso rose 0.7 percent to 1,799.70 per dollar.

Consumer prices fell 0.14 percent in November from a month earlier, the biggest monthly decrease in two years. The median forecast of 29 analysts surveyed by Bloomberg was for a 0.15 percent increase. The decline means policy makers may further reduce the target lending rate after they unexpectedly cut it last month for the third time since July, said Daniel Escobar, the head analyst at Global Securities brokerage in Bogota.

“There was a big surprise in inflation,” Escobar said in a phone interview. “Before this, the market was expecting them to hold for several more months.”

The surprise decline shows the central bank was right to cut interest rates in November, Finance Minister Mauricio Cardenas said in an interview last night. Inflation will probably end 2012 lower than policy makers had forecast and below the 3 percent midpoint of the target range, Cardenas said.

Annual inflation slowed to 2.77 percent, the lowest since 2010, on cheaper food and transport costs. Cardenas said the drop showed that the El Nino weather phenomenon didn’t cause the gain in food prices that some economists had forecast.

The central bank cut its target lending rate by a quarter-percentage point to 4.5 percent at its November meeting after the nation’s biggest brokerage collapsed and industrial output contracted for a second month.

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