Yields on Colombia’s peso bonds held at a record low on Wednesday according to reports.
Yields on Colombia’s 10% peso bond due in 2024, dropped to 6.28% on Wednesday, the lowest level since bonds were first sold in 2009.
Investors are getting out of short-term investments and moving towards future investments, as inflation slowed to 2.95% through September, reported Bloomberg.
The peso weakened against the dollar on Wednesday by 0.2% to 1,802.62 per U.S. dollar, despite a slight increase on Tuesday. The peso has strengthened 7.5% this year, making it the fifth best performance of the currencies tracked by Bloomberg.
Increasing levels of foreign investment into oil and coal is the main force behind the peso’s strength, and foreign direct investment could hit a record high this year as foreign investment in Colombia reached more than $11.8 billion by September which was a growth of 20.39% on the same period in 2011.
The central bank is trying to keep the peso from gaining too much by continuing its dollar-buying program for at least another six months, as Colombian exporters are struggling to sell their dollar-priced goods. A report from the Colombia government’s statistics office on Monday said that exports had dropped by 4% in July of this year against the same month in 2011.
The central bank intends to buy at least $3 billion from now until March, putting the daily minimum between $20 and $25 million. This figure is down from the $28 million a day the central bank bought through September. Colombia’s treasury will also continue buying dollars, amounting to $500 million by the end of this year according to the Wall Street Journal.
The central bank which has lately been slashing benchmark interest rates in an effort to boost the economy, may also have been underestimating growth, which was 4.9% in the second quarter of this year in comparison to the same period in 2011, as there is not much room to cut rates further. Last week interest rates were left on hold at 4.75%.
Spending on public works rose 23% from April to June this year in comparison to the same period in 2011, and the increase in investment is expected to further stimulate economic growth.