Colombia’s foreign debt rating was raised to the second-lowest investment grade by Standard & Poor’s as economic growth increased tax revenue and peace talks with rebels boosted investor confidence.

Yields on benchmark local bonds fell to a record low as S&P lifted Colombia one step to BBB with a stable outlook. The rating is in line with Brazil, Mexico and Peru. Colombia’s peso appreciated 0.1 percent to 1,836.60 per U.S. dollar at the close of trading in Bogota.

“A stronger fiscal profile, growing domestic capital markets, and favorable long-term prospects for GDP growth have strengthened Colombia’s creditworthiness,” S&P credit analyst Joydeep Mukherji wrote in a statement today. “Negotiations between the government and the country’s main guerrilla group could lead to a significant reduction in violence.”

Colombia was given an investment-grade credit rating in 2011 for the first time in a decade as improved security bolstered economic growth and attracted record foreign investment. Congress passed legislation that year known as the fiscal rule allowing the nation to save part of windfalls resulting from rising commodity prices.

Government representatives are meeting with guerrillas from the Revolutionary Armed Forces of Colombia, or FARC, the nation’s biggest rebel group, to seek an end to a five-decade conflict. President Juan Manuel Santos said in an April 8 post on Twitter that “the opportunity to end the conflict, although there is a long way to go, I see it getting closer.”
‘Very Positive’

The rating upgrade will allow lower borrowing costs in Colombia, Finance Minister Mauricio Cardenas told reporters today. “This is very positive,” Cardenas said. “It’s the best economic news we’ve had this year.”

The yield on Colombia’s benchmark peso bond due in 2024 dropped four basis points, or 0.04 percentage point, to 4.84 percent, the lowest closing level since the securities were issued in 2009. The yield has plunged 82 basis points this year.

Fitch Ratings, which rates Colombia’s foreign debt at BBB-, the lowest level of investment grade, has a positive outlook. Moody’s Investors Service rates the Andean country at a comparable Baa3 with a stable outlook.

The extra yield that investors demand to own Colombian government dollar bonds instead of U.S. Treasuries was unchanged at 133 basis points at 3:04 p.m. in New York, according to JPMorgan Chase & Co.’s EMBI Global index.

“Improved security, along with more investment in the country’s physical infrastructure, and continued cautious macroeconomic policy, could boost investor confidence and further improve the sovereign’s financial profile,” S&P’s Mukherji wrote. “We could raise the ratings under such a scenario.”

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