Bloomberg News

Colombian Yields Drop as Echeverry Predicts Narrowing Budget Gap

June 08, 2012

Colombia’s peso bonds rose, pushing yields down to the lowest in a month, after Finance Minister Juan Carlos Echeverry said the budget deficit may narrow.

The yield on the government’s 10 percent peso-denominated debt due in July 2024 dropped two basis points, or 0.02 percentage point, to 7.04 percent, according to the central bank. That is the lowest closing yield since May 8. The price rose 0.219 centavo to 123.543 centavos per peso.

The budget deficit will be 1.2 percent of gross domestic product this year and may fall below 1 percent next year, Echeverry said yesterday in Cartagena.

“It takes some of the pressure off for bond offerings next year,” Pedro Ospina, a fixed-income analyst at Interbolsa SA in Bogota, said in a phone interview. “There’s optimism because of many reasons, including the sustainability of the debt, while inflation is still under control. Those fundamentals have led to a drop in yields.”

The central bank cited in minutes of the May policy meeting published today cooling demand and “moderate” inflation risk in its decision to hold borrowing costs steady.

Colombia’s central bank isn’t contemplating reductions to its target lending rate even as Europe’s debt crisis casts a “gray cloud” over the Andean economy, central bank board member Cesar Vallejo said in an interview in Cartagena yesterday. The 5.25 percent target lending rate neither cools nor stokes inflation, according to Vallejo.

Vallejo’s comments are also helping drive gains in the benchmark peso bonds due in July 2024, according to Ricardo Bernal, head analyst at brokerage Serfinco SA in Bogota.

“His comments are reassuring in that the central bank doesn’t see an impact on the Colombian economy so strong that there is a need to cut rates as the market has been pricing in,” Bernal said.

The peso depreciated 0.4 percent to 1,776.75 per U.S. dollar today, the biggest decline among major Latin American counterparts tracked by Bloomberg. The local currency advanced 3 percent for the week.

To contact the reporter on this story: Christine Jenkins in Bogota at cjenkins28@bloomberg.net

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


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