Colombia’s peso bonds gained, pushing yields to their lowest level in almost seven months, after the economy grew faster in the first quarter than analysts forecast.
The yield on Colombia’s benchmark 11 percent bonds due July 2020 fell three basis points, or 0.03 percentage point, to 7.85 percent at 3:03 p.m. ET, according to Colombia’s stock exchange. That’s the lowest level since Dec. 1, 2009. The bond’s price rose 0.261 centavo to 121.354 centavos per peso.
Gross domestic product expanded 4.4 percent in the first quarter from the year-earlier period, led by growth in construction and mining, the national statistics agency said yesterday. That’s above the 3.6 percent median forecast in a Bloomberg survey of 24 economists.
“The market remains in a cheery mood after the GDP report,” said Alexander Cardenas, head of research at brokerage Acciones y Valores SA in Bogota. “Higher growth points to increased tax revenue and a lower budget deficit.” He predicts the yield will fall to 7.7 percent by mid-July.
Yesterday’s report led Cardenas to revise his GDP forecast for this year to 3.75 percent from 2.75 percent. Colombia expects a consolidated budget deficit of 3.6 percent of GDP in 2010, the biggest since 2002.
Goldman Sachs Group Inc. also raised its forecast for Colombia’s growth this year to between 4.5 percent and 5 percent from a previous estimate of 3.8 percent, Latin America economist Alberto Ramos wrote in a report yesterday.
“The recovery of activity does not present an immediate challenge to the inflation outlook as the economy is still operating with some slack,” Ramos wrote. “However, the growth- inflation trade-off is likely to turn less favorable as we get into 2011.”
Colombia’s central bank may “start to gradually remove some of the current monetary accommodation by late 2010 in order to anchor inflation expectations and defend the 2011 inflation target,” Ramos wrote.
Annual inflation was 2.07 percent last month, within the central bank’s target this year of 2 percent to 4 percent. Banco de la Republica’s overnight lending rate stands at a record low of 3 percent.
The peso fell for a third day, declining 0.2 percent to 1,899.60 from 1,896.30 yesterday. It gained 0.5 percent this week, the fifth consecutive weekly gain.
The peso will likely trade between 1,700 and 1,800 within the next six months, RBS Securities Inc. Latin America strategists Siobhan Morden and Flavia Cattan-Naslausky wrote in a report today.
“Structural flows, the impact of a positive credit shock on Colombian assets and a conservative foreign-exchange intervention policy leaves downside open for USDCOP,” they wrote.
(Andrea Jaramillo, Bloomberg)