Colombia’s peso bonds rose, posting the biggest weekly gain since April, as waning inflation expectations and speculation the central bank will lower interest rates boosted the appeal of the fixed-rate securities.
Yields on Colombia’s 11.25 percent peso-denominated debt due October 2018 fell three basis points, or 0.03 percentage point, to 6.27 percent today, according to the central bank. The yield fell 14 basis points this week, the most since the week ended April 13. The bond’s price rose 0.174 centavo today to 125.138 centavos per peso.
“Inflation is low and the economy is decelerating, indicating we might see a rate cut,” said Eduardo Bolanos, an analyst at Asesores en Valores brokerage in Bogota. Bonds with longer maturities, including debt maturing in July 2024 and August 2026, have room for further gains, he said.
Banco de la Republica held the overnight lending rate at 5.25 percent for a fourth straight month on June 29 as growth cooled and prices of the country’s commodity exports dropped. Since the start of 2011, the bank has raised the key rate nine times even as other emerging markets cut borrowing costs in response to Europe’s debt crisis.
More than one member of the central bank’s seven-member board voted for a quarter-point interest rate cut last month and wanted the bank to begin a “relaxation phase,” according to the minutes of the policy meeting published today.
Reports in June showed industrial output and retail sales unexpectedly fell in April and the economy expanded 4.7 percent in the first quarter, the slowest pace since 2010.
Colombia’s inflation will end this year at 3.08 percent, according to the median forecast in a central bank survey published July 11. Annual inflation slowed to 3.20 percent in June, within the central bank’s 2 percent to 4 percent target.
The peso climbed 0.6 percent to 1,775.97 per dollar. It rose 0.5 percent this week and has jumped 9.2 percent this year, the best performance among all currencies tracked by Bloomberg.
Increased portfolio investment flows, attracted by higher interest rates in Colombia, are helping gains in the peso, said Bolanos.
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