Bloomberg News

Colombia’s Peso Advances Most in a Week on Optimism Over Europe

October 21, 2011

Oct. 21 (Bloomberg) -- Colombia’s peso gained the most in a week as optimism European leaders are moving closer to containing the region’s debt crisis buoyed appetite for higher- yielding, emerging-market assets.

The peso climbed 0.9 percent to 1,892.33 per U.S. dollar, from 1,908.75 yesterday. Today’s gain pared the peso’s drop this week to 0.3 percent.

European finance ministers are meeting today, starting a six-day negotiation over how to save Greece from default and shield banks from the fallout. As much as 940 billion euros ($1.3 trillion) might be deployed to fight the debt crisis, seeking to break a deadlock between Germany and France that is forcing leaders to hold two summits within four days.

“Colombian markets move to the beat of Europe,” said Guillermo Puentes, head trader at Banco de Comercio Exterior de Colombia SA, known as Bancoldex. “The high correlation with external markets should continue while concerns over the debt crisis remain.”

The peso will gain toward 1,700 pesos per dollar in the next three to six months, RBS Securities Inc. strategists Flavia Cattan-Naslausky and Felipe Hernandez wrote in a report today.

The fourth quarter is a “seasonally weak” period for the peso, “providing a good entry point for positioning ahead of renewed appreciation pressures early next year,” they wrote.

The yield on Colombia’s benchmark 10 percent bonds due in July 2024 fell two basis points, or 0.02 percentage point, to 7.53 percent. The bond’s price rose 0.192 centavo to 119.742 centavos per peso.

La Nina

The yield earlier rose to 7.6 percent, its highest level in two weeks on bets heavier-than-average rain will push food prices higher and stoke inflation.

Colombia’s weather agency said earlier this week that the La Nina weather pattern, which triggers above-average rainfall, may return in December and last through March. Rain in the first half of October was equivalent to the historical average for the whole month, according to the government. Floods last year and at the beginning of this year damaged crops and choked off farmers’ supply routes, pushing food prices higher.

“People fear inflation will quicken because of the rains,” said Puentes.

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. Annual inflation quickened to 3.73 percent, within the central bank’s 2 percent to 4 percent target.

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 3.49 percentage points today from 2.83 percentage points a month ago.

--Editors: Glenn J. Kalinoski, Richard Richtmyer

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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