Colombia currently offers the best returns in the world for “carry-trade” investment and investors should take advantage, according to analyst reports published by US news-wire Bloomberg late on Thursday.
A weak peso compared to the US dollar, combined with low interest rates on government bonds make Colombia more attractive for “carry-trade” investors, that is, investors who make their margin by taking advantage of the differing rates of government bonds and currencies between countries.
According to Bloomberg, a strengthening peso and predicted increases in government bond interest rates suggest that the window for this trade in Colombia may be temporary.
Given Colombia’s two consecutive central bank interest rate hikes in as many months, coupled with predictions of further increases in rates by up to one full percentage point by the end of 2014, banking group Banco Bilbao Vizcaya Argentaria (BBVA) urged investors to stock up on Colombian bonds while they remain at 3.75%, reported Bloomberg.
“Colombia’s cycle calls for more rate hikes, opposite to a lot of these countries in the region,” said Carolina Ramirez, a BBVA Colombia strategist, in an interview with Bloomberg.
“The carry trade is attractive,” she said, “Colombia is lifting rates for the right reasons: the economy is growing and the central bank needs to keep inflation under control.”
The next meeting of the board of Colombia’s central bank, Banco de la Republica, is set for June 20, to take place right after the release of Colombia’s growth figures for the first three months of 2014.