Colombia Bond Yields Jump as Inflation Accelerates; Peso Gains

Colombia’s peso bonds fell and pushed yields up the most in a month after a government report showed last week that inflation accelerated in April more than forecast, reducing demand for the fixed-rate securities.

The yield on benchmark government peso bonds due in July 2024 climbed eight basis points, or 0.08 percentage point, to 4.99 percent at 10:35 a.m. in Bogota, the biggest increase on a closing basis since April 3, according to the central bank.

The consumer price index rose 2.02 percent in April from a year earlier after a 1.91 percent increase in the prior month, the government reported May 4. That was higher than the 1.94 percent median forecast among economists surveyed by Bloomberg. Inflation erodes returns on fixed-income bonds.

“Given the inflation number, investors are judging it’s an adequate moment to sell in the short term,” William Florez, a strategist at Helm Bank SA’s brokerage in Bogota, said in a telephone interview.

The break-even rate, a gauge of market projections for inflation derived from the difference in yield between CPI- linked notes due in 2015 and similar-maturity fixed-rate bonds, rose to 2.63 percent, the highest level on a closing basis since March 22.

Colombia’s central bank left the target lending rate at 3.25 percent on April 26, refraining from lowering it for the first time in six months. Policy makers have reduced borrowing costs two percentage points since they began to cut them in July. Central bank governor Jose Dario Uribe said April 29 inflation will “very likely” end this year below 3 percent.

The peso appreciated less than 0.1 percent to 1,834.12 per U.S. dollar today, paring its drop this year to 3.7 percent.

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