Colombia Peso Bond Yields Rise on Bets for Rate Increase

Colombia's peso bonds fell, pushing yields higher by the most in two weeks, on bets the central bank will raise the benchmark lending rate to 4.5 percent at a meeting next week from 4.25 percent.

The yield on Colombia's 10 percent bonds due July 2024 rose 12 basis points, or 0.12 percentage point, to 7.88 percent at 2:22 p.m.

New York time, for the biggest increase since July 1, according to the stock exchange.

The bond's price fell 1.032 centavos to 116.873 centavos per peso, the lowest price since June 14.

"The central bank has a lot of space to increase interest rates so it can keep inflation from rising in coming years," said Jose Luis Alayon, an analyst at Acciones y Valores SA.

"It is expected that in the coming meeting they will increase rates by another 0.25" percentage point.

Investors are betting the bank will raise the benchmark rate to 4.5 percent at the July 29 meeting, Alayon said.

Economists expect the bank to raise the rate to 5 percent by year-end, according to the average estimate in a central bank survey of 42 economists published July 11.

Economists also raised their 2011 inflation forecast for a second month as the economy's expansion quickens.

Consumer prices will rise 3.3 percent this year, up from a forecast of 3.2 percent in June and 3.1 percent in May, according to the average estimate.

Colombia's peso was little changed at 1,757.47 per U.S. dollar, from 1,758.06 on July 15.