Colombia’s peso bonds rose, pushing yields to a record low, after a government report that showed inflation unexpectedly slowed last month buoyed appetite for fixed-rate securities.
The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 fell 10 basis points, or 0.10 percentage point, to 7.13 percent, according to the central bank. That’s the lowest level on a closing basis since the securities started trading in March 2009. The price rose 0.935 centavo to 122.915 centavos per peso.
Annual inflation slowed to 3.4 percent in March, the national statistics agency said in an April 4 report after trading ended for the day. Markets were shut April 5-6 for the Easter holiday. The inflation rate was down from 3.55 percent in February and was less than the 3.63 percent median estimate among 23 economists surveyed by Bloomberg. The central bank targets inflation between 2 percent and 4 percent this year.
“Bonds are reacting favorably to the inflation surprise,” said Daniel Lozano, an analyst at Serfinco SA brokerage in Bogota. “Inflation is under control, the question now is what monetary policy will be like going forward.”
Colombian policy makers meeting last month were divided over the need to raise interest rates in the future to keep inflation in check, minutes of the meeting, published April 4, showed. The seven-member board voted unanimously on March 23 to keep the overnight rate unchanged at 5.25 percent, according to the minutes. Banco de la Republica has raised the benchmark rate nine times since February 2011, bringing it up from a record-low 3 percent.
The peso declined 0.6 percent to 1,783.88 per U.S. dollar, from 1,773.51 on April 6. The currency earlier touched 1,786.11, the weakest level since April 2. The peso has jumped 8.7 percent this year, the best performance among 25 emerging-market currencies tracked by Bloomberg.
The Colombian peso has reached a “worrying” level, Finance Minister Juan Carlos Echeverry wrote in an April 8 opinion column published in El Tiempo newspaper.
Colombia needs to weigh a “strategy that is richer in objectives and instruments” that combines the inflation target with a “more intensive sterilized intervention,” Echeverry, who is also president of the central bank’s board, wrote.
The central bank has said it will purchase a minimum of $20 million daily in the spot market until at least Aug. 4 in a bid to stem the peso’s rally.
Central bank chief Jose Dario Uribe said in an April 2 interview with W Radio that the bank’s board members all want a weaker peso and that the bank takes measures to ease gains when the benefits outweighs the costs.
The pace of further interest rate increases in Colombia will depend on the peso, Nomura Holdings Inc. said.
The peso’s rally “might make the board a bit less hawkish,” strategist Benito Berber wrote in a note to clients today. “The next hike, and yes there will be another hike, will be data dependent and more importantly Colombian peso dependent.”
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