Colombia’s peso bonds rose, pushing yields to a record low, after an unexpected drop in consumer prices last month buoyed demand for the fixed-rate securities.
The yield on the nation’s benchmark 11 percent bonds due 2020 fell 2 basis points, or 0.02 percentage point, to 6.97 percent at 2:44 p.m. New York time, according to Colombia’s stock exchange. That’s its lowest level on a closing basis since the securities were first issued in July 2005. The bond’s price climbed 0.130 centavo to 127.704 centavos per peso.
Consumer prices fell 0.09 percent in October from September led by a decline in food costs, the national statistics agency said late Nov. 5. Economists expected a 0.01 percent increase, according to the median estimate of 30 analysts surveyed by Bloomberg.
“With these new inflation numbers, we should see further gains in bonds, especially in the securities due 2020 and 2024,” said Daniel Lozano, an analyst at Medellin-based brokerage Serfinco SA. Yields may fall to 6.84 percent by year- end, he said.
Central bank chief Jose Dario Uribe said Nov. 5 at the presentation of the bank’s quarterly inflation report that consumer prices may climb as little as 2.6 percent this year and close to 2 percent next year. Banco de la Republica targets inflation this year between 2 percent and 4 percent.
The unexpected drop in consumer prices may lead investors to bet on a further cut in the central bank’s overnight lending rate, Lozano said. The bank last lowered the key rate in April, reducing it to a record 3 percent. Policy makers next meet Nov. 19.
“The market might start pricing in a rate cut,” Lozano said. The central bank will likely wait until the second half of next year to raise interest rates, he said.
The Colombian peso weakened 0.6 percent to 1,832.03 per U.S. dollar, from 1,820.70 at the end of last week. The peso has strengthened 11.6 percent this year, the third-best performance after the Japanese yen and the Australian dollar among 31 major currencies tracked by Bloomberg.
Banco de la Republica may be “preparing” markets for a rate cut amid the strong peso and an “improved” inflation outlook, Roubini Global Economics LLC economists Bertrand Delgado and Juan Lorenzo Maldonado wrote in a report today.
“Such strategy would kill two birds with one stone, as it would continue to support economic activity while reducing incentives for capital inflows and releasing tension from the currency,” they wrote.
In a bid to ease gains in the peso, the central bank said Sept. 15 it will buy a minimum of $20 million a day through auctions, later extending the purchases until “at least” March 15. Uribe has also left open the possibility of additional acquisitions, saying the bank can buy dollars in the market through a local clearing house “at any time.” (Andrea Jaramillo / Bloomberg)