Colombia Bond Yields Drop on Interest Rate Outlook; Peso Gains

Colombian bond yields fell to a record on mounting speculation the central bank will lower benchmark borrowing costs at least one more time to shore up economic growth.

The yield on the government’s peso-denominated bonds due in 2024 fell three basis points, or 0.03 percentage point, to 5.06 percent at the close of trading in Bogota, the lowest level on a closing basis since the securities were first issued in 2009, according to the central bank. The price rose 0.339 centavo to 142.083 centavos per peso.

Banco de la Republica, which has reduced the benchmark lending rate by 1.25 percentage points since July to 4 percent, is next scheduled to meet on Feb. 22. The rate cuts have helped fuel a rally in the government’s local bonds, known as TES, with yields on the 2024 securities falling 60 basis points this year.

“It’s pretty much a given the central bank will cut the rate this month,” said Camilo Perez, head analyst at Banco de Bogota SA, the country’s second-biggest bank. “The bets are now on if they will lower it again after February. It depends on what economic data shows but the chances are high they will lower it again probably in March” to 3.5 percent, said Perez.

The central bank estimates the economy expanded between 3.3 percent and 3.9 percent in 2012 and may grow about 4 percent this year, according to minutes from its January meeting, released Feb. 8. Growth has slowed from a pace of 5.9 percent in 2011, the fastest since 2007.

The peso climbed 0.2 percent to 1,780.52 per U.S. dollar. It has dropped 1 percent this year as the government and central bank announced increased dollar purchases to stem a rally that sent the peso to a 17-month intraday high on Jan. 2.

Lower foreign direct investment in Colombia is reducing appreciation pressures on the peso, according to Perez.

“What has really been driving gains in the peso are not the inflows but the expectation of these,” said Perez.

Foreign direct investment in Colombia was $1.03 billion in the first 25 days of the year, compared to $1.61 billion in January 2012 and $1.44 billion last month. FDI may fall in 2013 from a record $16.7 billion last year, central bank Governor Jose Dario Uribe said Feb. 8.

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