Colombia Yields Fall as Slower Inflation Boosts Rate Cut Bets

Colombia’s peso bond yields fell to a record as traders increased bets on interest-rate cuts after a report showed inflation at the slowest in almost three years.

The yield on 10 percent notes due in 2024 fell seven basis points, or 0.07 percentage point, to 5.12 percent at the close of Bogota trading, according to the central bank, the lowest since the securities were first issued in 2009. The yield has dropped 54 basis points this year, exceeding the 36 basis point decline for similar-maturity bonds in Mexico.

Annual inflation slowed to 2 percent in January, from 2.44 percent the previous month, to the lowest since April 2010, the government said yesterday. The report is fueling speculation the central bank will reduce the overnight lending rate to 3.5 percent from the current 4 percent, said Luis Eduardo Vidal, the head bond trader at Corp. Financiera Colombiana SA.

“There’s buying appetite in the market today,” Vidal said in a phone interview from Bogota. “Inflation came in much lower than people were expecting and so people are seeing more cuts.”

Yesterday’s inflation reading was lower than all 25 forecasts compiled by Bloomberg.

The central bank has lowered its benchmark rate at five of its past seven meetings, citing below-potential growth and a slowing inflation outlook.

Banco de la Republica, which is next scheduled to meet on Feb. 22, targets inflation between 2 percent and 4 percent. Colombia has the lowest inflation rate among major Latin American economies after Chile.

Colombia issued new fixed-rate securities today due November 2018 to yield 4.59 percent. That’s the lowest yield at which the government has ever sold bonds in the local market, the Finance Ministry said in a statement.

The peso weakened 0.3 percent to 1,791.50 per U.S. dollar and has fallen 1.1 percent in the past month.

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