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Colombia Bonds Gain on Prospects for Tax Break

Colombian bonds rose, pushing yields down the most in a week, after a lawmaker signaled that congress is open to a compromise with the government on a tax cut for foreigners’ bond profits.

The yield on the government’s 10 percent peso-denominated bonds due in July 2024 fell four basis points, or 0.04 percentage point, to 5.97 percent, according to the central bank. The price rose 0.403 centavo to 133.025 centavos per peso. The currency depreciated 0.1 percent to 1,796.75 per U.S. dollar at the close in Bogota.

Angel Custodio, a member of the Lower House, said in an interview yesterday that lawmakers may be willing to lower the rate below 25 percent, a level he proposed earlier this week. President Juan Manuel Santos advocated in November cutting the rate to 14 percent from the current 33 percent.

The bond yields fell because of Custodio’s comments, said Daniel Lozano, the head analyst at Serfinco brokerage in Bogota. “Traders have been following news on the tax changes closely,” he said.

The congressional proposal earlier this week sent domestically issued bonds tumbling.

“We’ll look to see if a change is made,” Custodio said. “You want to balance investments to compete with the world.”

Lawmakers had offered a scaled-back tax-cut proposal because of concern that increased foreign investment might fuel gains in the peso, Custodio said.

‘More Political’

“The market is very much on the lookout for these debates,” said William Florez, an analyst at Helm Bank SA’s brokerage in Bogota. “The tone of it is getting more political and less economic, and those political issues can generate a lot of instability.”

A surprise drop in Colombian consumer prices last month means inflation at the end of 2013 may be slightly below the 3 percent midpoint of policy makers’ target range, Jose Dario Uribe, the central bank’s governor, said yesterday.

The central bank may trim its 2013 forecast after measures of so-called “core” inflation, excluding volatile food and fuel prices, slowed, Uribe said in an interview at the bank’s Bogota headquarters. Policy makers’ forecast is for consumer prices to rise 3 percent next year, in line with the target.

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