Colombia’s peso bonds gained for a fifth day on speculation the central bank will lower borrowing costs as the economy slows.
The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 fell four basis points, or 0.04 percentage point, to 6.80 percent, according to the central bank. That’s the lowest level on a closing basis since the securities were first issued in 2009. The bond’s price rose 0.368 centavo to 125.76 centavos per peso.
Speculation there will be a rate cut mounted after minutes of the central bank’s most recent meeting, released July 13, showed more than one member of the seven-member board voted for a quarter-point interest rate reduction last month and wanted the bank to begin a “relaxation phase.” 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.
“At least two voted for a cut, fueling bets for a move sometime this year,” said Daniel Escobar, the head analyst at Global Securities in Bogota. “We at least won’t see any more rate increases. The bond curve continues to flatten on this view.”
Since the start of 2011, the central bank has raised the target rate nine times even as other emerging markets cut borrowing costs in response to Europe’s debt crisis.
The peso declined 0.2 percent to 1,779.80 per dollar. It’s up 8.9 percent this year, the best performance among all currencies tracked by Bloomberg.
Colombia’s central bank should step up dollar purchases to curb the currency rally and give the Andean nation a “much higher” level of foreign reserves, President Juan Manuel Santos said in a July 14 interview.
Policy makers have said the central bank will buy a minimum of $20 million daily in the spot market until at least Nov. 2.
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