Colombia yields decline for third day on plan to reduce tax rate

Colombia’s peso bond yields fell for a third day after the government revised a proposal for taxes on foreigners’ bond profits, reducing a levy of 14 percent and removing a means for policy makers to increase the rate.

The yield on the 10 percent peso denominated bonds due in july 2.024 fell four basis points, or 0.04 percentage point, to 6.18 percent at 10:01 a.m. in Bogotá, the lowest on a closing basis since Nov. 8, according to the central bank.

“We should continue to see yields fall gradually,” said Daniel Velandia, the head of research at Correval SA brokerage said by phone from Bogotá. 

He forecast the yield on the bond due in July 2.024 will fall to below 6 percent at the beginning of next year if Congress approves the tax initiative.

The government’s proposal to reduce the current 33 percent levy is intended to reduce yields on peso bonds by luring overseas creditors, Public Credit Director Maria Fernanda Suarez said in an interview last month.

A previous version of the proposal called for cutting the tax rate to 12.5 percent while allowing for the levy to be raised to 25 percent should the government “determine that market conditions are favorable for attracting foreign portfolio investment.” 

The government has said it expects Congress to approve the tax plan by year-end.

The peso appreciated 0.4 percent to 1,817.50 per U.S. dollar, extending its rally in november to 0.8 percent, the biggest among 25 emerging market.