Colombia Yields Within Basis Point of Record Low; Peso Declines

Colombia’s peso bond yields held within a basis point of a record low on speculation the central bank will reduce borrowing costs at its meeting this week.

Yields on the securities due in 2024 were unchanged at 5.02 percent at the close of trading in Bogota, according to the central bank. They fell to 5.01 percent on Feb. 15, the lowest on a closing basis since the bonds were issued in 2009.

Banco de la Republica will reduce the 4 percent target rate by 0.25 percentage point on Feb. 22, according to 22 of 24 economists surveyed by Bloomberg. Two forecast the rate will hold steady. Finance Minister Mauricio Cardenas said in an interview on RCN Radio yesterday that the government wants lower borrowing costs.

“The market has already priced in this week’s cut,” Jorge Cardozo, an analyst at Corredores Asociados brokerage, said in a phone interview from Bogota. “It has been difficult for the 2024 bonds to break the 5 percent level, but once the bank cuts the rate, the yield should once again start ticking lower.”

Cardozo forecasts the central bank will lower the overnight lending rate to 3.5 percent by March, pushing the yield on the securities to 4.75 percent in the second quarter.

The peso weakened 0.1 percent to 1,791.70 per U.S. dollar, extending its drop this year to 1.4 percent 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.

Dollar Purchases

Cardenas said Feb. 13 that the government will buy $1 billion to pay for interest and principal on foreign bonds coming due, helping to weaken the peso and make exporters more competitive. The government said last month that it would purchase the same amount for its oil stability fund.

Banco de la Republica said Jan. 28 it would buy at least $30 million a day, boosting purchases in the foreign-exchange market to $3 billion from February to May. A stronger peso curbs exporters’ profits.

“The intervention has definitely had an impact,” Cardozo said.

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