Colombia Yields Fall to Record on Rate Outlook; Peso Weakens

Colombia’s peso bond yields fell to a record on mounting speculation the central bank will lower the benchmark interest rate at least once more this year to buoy growth in the Andean country.

The yield on the government’s 9.25 percent peso-denominated bonds due in May 2014 fell one basis point, or 0.01 percentage point, to 4.07 percent at the close of trading in Bogota, according to the central bank. That’s the lowest on a closing basis since the securities were issued in 2009.

Yields have fallen 18 basis points since a Feb. 5 report showed annual inflation slowed to 2 percent in January, the lowest level since April 2010 and at the bottom of the central bank’s 2 percent to 4 percent target range. Policy makers will lower the key rate 25 basis points to 3.75 percent at a Feb. 22 meeting, according to 21 of 23 economists surveyed by Bloomberg. Two forecast the rate will remain unchanged.

“The market is pricing in additional cuts beyond this week,” said Juan Camilo Cruz, an analyst at Alianza Valores brokerage in Bogota.

Banco de la Republica has trimmed the overnight lending rate 1.25 percentage points since June to 4 percent. Cruz forecasts the central bank will cut the overnight lending rate to 3.25 percent in the first half and then raise it to 3.75 percent by year-end.

Yields on the bonds due in 2014 will fall to 3.98 percent, according to Cruz.

South America’s third-biggest economy grew 2.1 percent in the third quarter, less than half the 4.9 percent rate in the prior three months and the slowest pace in the Andean region.

The peso depreciated 0.3 percent to 1,791.10 per U.S. dollar, according to the stock exchange’s electronic currency transactions system, known as SET-FX. Because of the U.S. holiday, Colombia’s currency trades in the next-day market, in which payment and delivery are made the following trading day.

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