Bloomberg News

Colombia Yields Rise to Two-Month High on Interest Rate Outlook

February 14, 2012

Feb. 13 (Bloomberg) -- Colombia’s peso bonds fell, pushing yields on benchmark securities to a two-month high, on speculation the central bank will raise interest rates as soon as this month to keep inflation in check.

The yield on the government’s 9.25 percent peso bonds due May 2014 rose five basis points, or 0.05 percentage point, to 6.33 percent, according to the central bank. That’s the highest level on a closing basis since Nov. 23. The price fell 0.127 centavo to 105.889 centavos per peso.

Minutes from the latest central bank meeting, published after markets closed Feb. 10, showed policy makers cited the economy’s strongest growth since 2006 and a surge in lending for their decision to raise the overnight lending rate 25 basis points to 5 percent in January. The increase was the eighth since the beginning of 2011 as they seek to curb inflation and cool growth the bank forecasts may reach 6 percent this year. The next monetary policy meeting is scheduled for Feb. 24.

“The minutes reaffirm the view that it’s unlikely the central bank will halt its rate-increase cycle,” said Camilo Perez, the head analyst at Banco de Bogota SA, the country’s second-biggest bank. “Assuming things abroad don’t deteriorate” Banco de la Republica may raise the key rate to as high as 5.75 percent this year, he said.

The peso bond curve should continue to “flatten” on bets policy makers will raise interest rates further this year, said Daniel Lozano, an analyst at Serfinco SA brokerage in Bogota.

The gap between yields on government peso bonds due July 2024 and the May 2014 securities dropped to 1.06 percentage point today from 1.27 percentage points a month ago.

Peso Climbs

The peso rose near a six-month high after Greek lawmakers approved austerity plans to secure rescue funds, buoying appetite for higher-yielding assets. Euro-area finance chiefs will convene in Brussels on Feb. 15 for their second extraordinary meeting on Greece in a week.

The Colombian currency advanced 0.3 percent to 1,778.20 per U.S. dollar, from 1,784.15 on Feb. 10. It touched 1,770 on Feb. 9, the strongest intraday level since Aug. 17. The peso has jumped 9 percent this year.

Colombia may take further action to curb the peso’s appreciation as it fights its “own little currency war” to protect export industries, Finance Minister Juan Carlos Echeverry said in a Feb. 9 interview.

Citing a plan to increase international reserves, the central bank began a plan on Feb. 6 to buy a minimum of $20 million in the currency market for at least three months. The central bank had ended a one-year dollar purchase program in September.

“Risks of a bigger intervention” will ease the pace of the peso’s appreciation, according to Perez.

--Editors: Glenn Kalinoski, 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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