Colombia to Wait for Peso Weaker Than 1,900 to Sell Dollar Bonds

Colombia will wait until its peso weakens past 1,900 per U.S. dollar to issue $600 million in overseas bonds planned for this year, according to Public Credit Director Michel Janna.

Finance Minister Mauricio Cardenas, who on April 3 referred to peso strength as “the mother of all problems” because it reduces profits for industry and agriculture, has sought to weaken the local currency in part by reducing the amount of financing the country gets from abroad.

“We want to make sure that the exchange rate is at a good level,” Janna said in a July 19 interview in his Bogota office. “Something close to 1,900 pesos, which is what Minister Cardenas has said is a relatively comfortable level for the government.”

Colombia’s currency strengthened to 1,882.37 on July 19 after a global selloff of emerging-market assets in May and June pushed the peso to as weak as 1,940 on June 24.

The government said in February it will sell $600 million in foreign bonds during the remainder of the year after issuing $1 billion of dollar notes in January. The total planned for 2013 is 38 percent lower than the $2.6 billion the Andean country had said in December it would issue in overseas debt.

The emerging-market selloff, triggered by speculation the U.S. Federal Reserve will reduce monetary stimulus later this year, helped push yields on Colombia’s dollar bonds due in 2021 to a 20-month high of 3.97 percent on June 25.

“We want to have stable yields abroad, probably even lower than what we’re seeing right now,” Janna said.

Normalized Conditions

The market rout also pushed Colombia’s domestic borrowing costs higher, with yields on benchmark peso-denominated bonds due in July 2024 surging to a one-year high of 7.15 percent on June 21.

As demand for the country’s longer-term securities waned, the Finance Ministry last month pared back local debt auctions by as much as half. In the government’s June 26 auction, it sold 300 billion pesos ($159 million) of fixed-rate bonds, known as TES, compared with 600 billion pesos offered in auctions in May.

As conditions “normalize,” Colombia will sell at least 600 billion pesos of TES in biweekly auctions starting July 24, in order to meet the government’s goal of auctioning 21.5 trillion pesos of debt this year, Janna said.

A decree that encourages pension funds to shift assets abroad will probably be delayed until 2014, Janna said.

“We want to make sure we incorporate all the positions of the industry into that decree,” Janna said. “There will be an implementation period that will be long enough so that if there’s any need for the market to accommodate, the market can do it in a very smooth way.”

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