Colombia’s peso bonds fell, pushing yields to a four-month high, on speculation heavier-than-normal rains will fuel an inflation pick-up by damaging crops and driving up food prices.
The bonds also dropped for a fourth day as fighting between North and South Korea led investors to seek refuge in U.S. Treasuries and metals such as gold, according to Julian Ramirez, an analyst at Bogota-based brokerage Proyectar Valores SA.
The yield on the government’s benchmark 11 percent bonds due 2020 rose 9 basis points, or 0.09 percentage point, to 7.58 percent at 3:46 p.m. New York time, according to Colombia’s stock exchange. That’s the highest level on a closing basis since July 27. The bond’s price dropped 0.723 centavo to 122.725 centavos per peso.
“Fighting between the two Koreas is adding to global uncertainty and is leading to increased appetite for liquidity,” said Ramirez. “Heavy rain in Colombia is also causing some worries about inflation over the next three months.”
At least 140,000 hectares (345,948 acres) in Colombia are flooded, which has led to increases in the price of farm goods such as potatoes, rice and corn, Agriculture Minister Juan Camilo Restrepo said last week, according to a statement from his office. Colombian President Juan Manuel Santos said today the government will borrow $150 million from the World Bank to help flood victims.
Ramirez predicts Colombia’s annual inflation may quicken to 2.7 percent by year-end from 2.33 percent last month. The central bank targets inflation this year between 2 percent and 4 percent.
South Korea scrambled fighter jets and returned fire after North Korea lobbed dozens of shells into its waters and at an island, killing two soldiers. Spanish and Portuguese government bonds fell amid speculation the countries will struggle to manage their deficits after Ireland’s request for a bailout failed to convince investors that the euro region has contained its debt crisis.
Investors may boost demand for short-term government peso bonds as the Finance Ministry is set to pay 4.6 trillion pesos ($2.43 billion) for debt coming due tomorrow, according to Ramirez.
“Investors will probably buy mostly 2011 and 2012 bonds to maintain the same balance in their portfolio,” said Ramirez.
Colombia’s peso slid 0.7 percent to 1,893 per U.S. dollar, from 1,879.95 yesterday. The peso has plunged 4 percent in the past three months, the worst performance among 25 emerging- market currencies tracked by Bloomberg.