Colombia’s bonds rose, pushing benchmark yields to record lows, after the central bank cut borrowing costs last week to revive a slowing economy.
The yield on the government’s 10 percent peso-denominated securities due in July 2024 dropped five basis points, or 0.05 percentage point, to 5.67 percent, the lowest level since the securities were issued in 2009, according to the central bank. The bond’s price climbed 0.535 centavo to 135.979 centavos per peso.
“Not only is the market pricing in the rate cut but also of increased chances of more to come given growth probably won’t even reach 4 percent this year,” said Felipe Campos, the head analyst at Alianza Valores brokerage in Bogota.
Policy makers lowered the target lending rate by a quarter-percentage point to 4.25 percent on Dec. 21, matching the forecast of 11 of 32 analysts surveyed by Bloomberg. Twenty-one forecast no change. The vote wasn’t unanimous, Banco de la Republica Governor Jose Dario Uribe said. Colombia’s growth may be slower than 4 percent this year, policy makers said in a statement, after expanding 5.9 percent in 2011.
The economy grew 2.1 percent in the third quarter from a year earlier compared with 4.9 percent in the prior period, the government reported Dec. 20. The reading was weaker than all 28 forecasts compiled by Bloomberg.
Local bonds, known as TES, and the peso got a boost last week after Congress approved a reduction in taxes on foreigners’ bond profits as Colombia seeks to lure more foreign investment and reduce borrowing costs.
Starting in 2013, the levy will fall to 14 percent from 33 percent for foreign investors except those from countries considered tax havens, who will be taxed at a 25 percent rate.
The peso closed little changed at 1,776.50 per U.S. dollar today. It has rallied 9.1 percent this year, the most among major Latin America currencies.
“While other currencies in the region are falling, the peso is gaining as people see more foreign investors buying TES,” said Campos, who forecasts the yield on the TES bonds due in July 2024 will fall to 5.2 percent.
The bonds yield 1.49 percentage points more than Colombia’s overseas peso securities, compared with a gap of 2.18 percentage points in November.