Colombian Peso Bonds Tumble as Government Plans Bigger Debt Sale

Colombia’s peso bonds fell the most since October after the government increased the amount it plans to issue in debt this year and next.

The price on benchmark peso bonds maturing in 2024 plunged 1.4 centavos to 124.57 centavos per peso at the close in Bogota, according to data from the central bank. The yield rose 17 basis points, or 0.17 percentage point, to 6.59 percent. The peso declined 0.7 percent to 1,901.71 per dollar.

Colombia will auction 19.3 trillion pesos ($10.1 billion) of peso bonds in the domestic market this year, up from a previously planned 18.3 trillion pesos, according to the revised financing plan published yesterday on the Finance Ministry’s website. The Andean country plans to auction 23.7 trillion pesos of peso bonds, known as TES, in 2015.

“It took the market by surprise,” Carolina Ramirez, a strategist at Banco Bilbao Vizcaya Argentaria’s Colombia unit. “People weren’t expecting issuance to increase. If anything, what the market was seeing was that this year’s debt auctions would end around July.”

The financing plan also shows the government revised its 2014 central government budget deficit to 2.4 percent of gross domestic product, the same as last year, from 2.3 percent in the financing plan published in December.

The government also revised lower the country’s oil output target to 981,000 barrels a day this year, compared with 2013 production of 1.01 million barrels a day.

‘Negative’ Revisions

Lower oil output may be the reason why the government increased its debt sale plans, according to Daniel Velandia, the head analyst at Credicorp’s Colombia unit.

Colombia approved a so-called “fiscal rule” in 2011 that allows the nation to save part of the windfalls resulting from rising commodity prices. The rule also calls on the country to reduce its “structural” deficit, lowering it to 2.3 percent of GDP or less by 2014 and 1.9 percent or less in 2018.

The structural deficit this year will be 2.3 percent of GDP, which is “consistent” with the fiscal rule, according to the financing plan. The structural deficit is based in part on the government’s estimate for potential growth this year of 4.8 percent. Potential growth is the rate at which the economy can expand without stoking inflation.

“The revisions are negative,” Velandia said in a phone interview from Bogota. “You shouldn’t use a nonobservable variable, potential growth, to say the structural deficit will be lower than the budget deficit.”

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