Bloomberg News

Colombia Peso Bond Yields Fall to Six-Month Low on CPI Outlook

March 13, 2012

Colombia’s peso bonds rose, pushing yields on benchmark securities to a six-month low, as a decline in economists’ inflation estimates fueled demand for fixed-rate securities.

The yield on the country’s 10 percent peso-denominated debt due July 2024 fell three basis points, or 0.03 percentage point, to 7.19 percent in Bogota, according to the central bank. That’s the lowest level on a closing basis since Sept. 9. The price rose 0.273 centavo to 122.437 centavos per peso.

Economists cut their year-end inflation forecast to 3.45 percent, according to the median forecast in a central bank survey published March 9 after markets closed. The median estimate was 3.5 percent in the February survey. Inflation rose last month to 3.55 percent, from 3.54 percent in January, indicating Banco de la Republica’s nine interest rate increases since February 2011 have helped keep inflation in check as the economy expands.

“This year started out pretty benign in terms of inflation,” said Daniel Lozano, an analyst at Serfinco SA brokerage in Bogota. “Those surprises are favorable to the market, which has continued to adjust its inflation expectations.”

The gap between yields on government inflation-indexed bonds due in 2013 and similar-maturity fixed-rate debt, a gauge of annual consumer price increase expectations, fell to 3.34 percentage points today from 3.95 percentage points two months ago.

Colombian policy makers raised the overnight lending rate a quarter percentage point to 5.25 percent on Feb. 24 from a record low 3 percent last year, at a time when central banks in Brazil, Chile and Russia cut borrowing costs to shore up growth in their economies.

Interest-Rate Outlook

Banco de la Republica will raise the key rate to 5.5 percent in the March 23 meeting and leave it at that level through the remainder of the year, according to the majority of economists in the central bank survey. The bank targets inflation between 2 percent and 4 percent.

Policy makers forecast gross domestic product in Colombia may be as high as 6 percent in 2011 and 2012. The economy expanded 7.7 percent in the third quarter from a year earlier, its fastest pace since the fourth quarter of 2006 when GDP rose 7.73 percent. The national statistics agency is scheduled to report 2011 GDP growth on March 22, a day before the central bank’s next policy meeting.

Whether or not policy makers will continue raising rates “will depend on the evaluation we make every month of future inflation, given the midpoint of our target range, and the evaluations we make about the behavior of economic growth and financial variables,” bank chief Jose Dario Uribe said March 1 in Punta del Este, Uruguay.

The peso rose 0.3 percent to 1,758.15 per U.S. dollar, from 1,763.90 yesterday. The peso has jumped 10.3 percent this year, the second-best performance, after the Mexican peso, among a basket of emerging-market currencies tracked by Bloomberg.

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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