Bloomberg News

Colombia Peso Bond Yields Approach 2-Month High on CPI Increase

October 06, 2011

Oct. 6 (Bloomberg) -- Colombia’s peso bonds fell, pushing yields toward a two-month high, after inflation quickened more than analysts forecast in September.

The yield on the government’s benchmark 10 percent peso bonds due in July 2024 rose four basis points, or 0.04 percentage point, to 7.68 percent at 2:37 p.m. New York time. The yield reached 7.8 percent on Oct. 3, the highest level on a closing basis since July 25.

Colombia’s consumer prices rose 0.31 percent in September from the previous month, driven by higher housing and food costs, after declining 0.03 percent in August, the national statistics agency said in a report late yesterday. Annual inflation quickened to 3.73 percent. Economists expected monthly inflation of 0.02 percent and for prices to rise 3.43 percent from a year earlier, according to the median estimates of analysts surveyed by Bloomberg.

“Inflation is worrying now that we’re getting close to the ceiling” of the central bank’s target range of 2 percent to 4 percent for this year, said Carlos Torres, head analyst at Asesores en Valores SA brokerage in Bogota. “Banco de la Republica will need to continue raising interest rates to keep inflation expectations in check.”

Policy makers in September kept borrowing costs unchanged at 4.5 percent for a second straight month, citing the need to gauge the impact of the European debt crisis on Colombia’s economic growth. The central bank will lift the key rate to as high as 5 percent by year-end, Torres predicts.

Inflation Outlook

The gap between yields on government inflation-indexed bonds due 2013 and similar-maturity fixed-rate debt, a gauge of annual consumer price increase expectations known as the breakeven rate, rose to 3.22 percentage points today from 2.94 percentage points yesterday.

Still, Felipe Hernandez, an analyst at RBS Securities Inc. in Stamford, Connecticut, forecasts policy makers will leave rates unchanged “in the foreseeable future.”

Inflation “remains in line with the target and the trend outlined by the central bank earlier this year,” Hernandez wrote in a report today. “The result also shows that higher inflation is mainly explained by supply shocks and that demand driven pressure on prices remains moderate despite robust domestic demand.”

The peso rose 0.7 percent to 1,946.80 per U.S. dollar, from 1,961.10 yesterday. The currency has plunged 8 percent in the past month.

--With assistance from Randall Woods in Santiago. Editors: Richard Richtmyer, Brendan Walsh

To contact the reporter on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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