Colombia Peso Bonds Gain on View Bank Will Reduce Interest Rates

Colombia’s peso bonds rose, pushing yields to a record low, after central bank chief José Dario Uribe said policy makers will probably reduce their forecast for the country’s 2.012 growth.

The yield on Colombia’s 10 percent peso-denominated debt due in 2.024 fell four basis points, or 0.04 percentage point, to 6.91 percent, according to the central bank. 

That is the lowest level on a closing basis since the securities were first issued in 2.009. 

The bond’s price rose 0.341 centavo to 124.671 centavos per peso.

Colombia’s central bank will probably reduce its forecast for the economy’s expansion from the current range of 4 percent to 6 percent, Uribe said in a July 6 interview, without saying what the new projection will be. 

The outlook for slower growth signals policy makers are more likely to reduce the benchmark interest rate, said Daniel Velandia, the head analyst at the Correval SA brokerage in Bogotá.

“People are pricing in greater chances of a cut this year,” Velandia said in a phone interview. “

Some are even starting to bet on two cuts.”

The central bank held the overnight lending rate at 5.25 percent for a fourth straight month on June 29 as growth cooled and prices of the country’s commodity exports dropped. 

Government reports in June showed industrial output and retail sales unexpectedly fell in April and the economy expanded 4.7 percent in the first quarter, the slowest pace since 2.010.

Reports on industrial output and retail sales in May, scheduled to be released July 19, “will be key in providing a clearer picture of the likelihood of rate cuts,” Velandia said.

Colombia’s peso rose from a one-week low as concern over Europe’s debt crisis eased after the region’s finance ministers took steps to protect Spanish banks.

The peso appreciated 0.1 percent to 1,786.88 per dollar after touching 1,794.25 yesterday, the weakest since June 28.