Colombian Bonds Gain on Interest-Rate Outlook; Peso Strengthens

Colombia’s peso bonds advanced, pushing yields lower, on speculation the central bank may reduce interest rates as soon as this week to buoy growth in the South American country.

The yield on the government’s 9.25 percent debt due in May 2014 fell four basis points, or 0.04 percentage point, to 4.89 percent, according to the central bank. The price increased 0.046 centavo to 105.712 centavos per peso. The yield on the country’s benchmark peso bond due July 2024 fell one basis point to 5.88 percent. Shorter-term bonds are more prone to fluctuations in value from near-term interest-rate changes.

“Chances are rising for another cut,” Daniel Escobar, the head analyst at Global Securities Colombia SA, a brokerage firm in Bogota, said in a telephone interview.

Policy makers last month unexpectedly lowered the overnight lending rate by a quarter-percentage point to 4.5 percent to boost a slowing economy.

Banco de la Republica will lower the benchmark by a quarter-percentage point to 4.25 percent on Dec. 21, according to three of 31 economists surveyed by Bloomberg. The rest project the target rate will hold steady.

The peso rose 0.1 percent to 1,791.65 per U.S. dollar today and has rallied 8.2 percent this year.