Colombia Yields Plunge on Fitch Outlook, Rate View; Peso Gains

March 7 (Bloomberg) -- Yields on Colombia’s peso bonds fell the most in a month a day after Fitch Ratings said it may raise the country’s foreign debt rating and on speculation the central bank will further reduce borrowing costs.

Yields on bonds maturing in 2024 dropped six basis points, or 0.06 percentage point, to a record low 4.87 percent at the close of trading in Bogota, according to the central bank. The decline was the biggest since Feb. 6. The price rose 0.617 centavo to 143.9570 centavos per peso.

Fitch raised its outlook on the Andean nation’s foreign debt rating to positive from stable yesterday on rising international reserves and dropping debt levels. Colombia has entered a “sustainable low-inflation phase” that allows policy makers to focus on spurring economic growth, Finance Minister Mauricio Cardenas said in a March 5 phone interview. Annual inflation decelerated in February to 1.83 percent, the slowest since 1955, the government reported that day.

“The Fitch announcement is injecting optimism in the market at a time when there is concern about slowing growth,” Daniel Velandia, the head analyst at brokerage Correval SA, said in a phone interview from Bogota. “Inflation is also a big driver as it changes the view of those who weren’t expecting any more rate cuts.”

Velandia said he changed his forecast for benchmark borrowing costs after the inflation report and now expects a 25 basis point reduction to 3.5 percent at Banco de la Republica’s March 22 meeting. The central bank has lowered its policy rate six times beginning in July to 3.75 percent, the lowest level among major Latin American economies.

Fitch rates Colombia BBB-, the lowest investment-grade level. The announcement came after the close of the market. Standard & Poor’s raised its outlook on Colombia’s BBB- rating to positive in August.

The peso appreciated 0.3 percent to 1,802.60 per U.S. dollar today, paring its drop this year to 2 percent.

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net