Colombia’s fixed-rate peso bonds have returned three times as much as debt linked to consumer prices this year, after inflation defied economists’ forecasts and fell to a two-year low.
The fixed-rate bonds due 2013 have gained 6.3 percent this year, versus 1.9 percent for similar-maturity inflation-linked bonds, the third year the fixed-rate bonds outperformed the so- called linkers.
Consumer prices rose 2.77 percent last month, the lowest since 2010 and less than the 3.5 percent year-end estimate from economists in a central bank survey in January.
Central bank Governor Jose Dario Uribe has brought inflation closer to its target than any other major economy in Latin America, enabling the Andean nation to cut interest rates last week for a second straight month to 4.25 percent.
With economists forecasting that inflation will remain close to 3 percent next year, the rally in fixed-rate securities will continue into 2013, according to Global Securities Colombia SA.
“The fundamentals are very positive for fixed income with low inflation, fiscal accounts under control, and the economy slowing,” Daniel Escobar, head analyst at Global Securities in Bogota, said in a Dec. 21 telephone interview.
“You assume the central bank has the space to cut rates, and that’s positive for government debt.”
Yields on fixed rate bonds maturing in April 2013 have fallen 147 basis points to 4.31 percent this year. The yield on inflation-linked bonds maturing March 2013 rose 302 basis points to 2.308 percent over the same period.
Lowest Rates
Colombia’s central bank has cut its benchmark rate at four of its last six board meetings, citing the weakening global economy and below-potential domestic growth, giving Colombia the lowest borrowing costs in the region alongside Peru.
“Inflation, the average of core inflation indicators and most measures of inflation expectations are below 3 percent,” policy makers said Dec. 21 in the statement accompanying their rate cut.
“The latest information suggests that this situation will continue for some time.”
The central bank declined to comment in an e-mailed statement.
Colombia’s inflation rate in November was 0.23 percentage point away from 3 percent, the mid-point of the central bank’s target range.
In Peru, inflation was 0.66 percentage point higher than the mid-point of the target, while consumer prices in Chile rose 0.9 percentage point less than target.
‘Expansionary Policy’
“All next year, inflation will be testing the floor of the bank’s range, which will give them all the liberty in the world for expansionary policy,” said Felipe Campos, head analyst at Alianza Valores brokerage in Bogota.
The yield gap between inflation-linked bonds and fixed-rate debt due in 2015, a gauge of investors’ expectations for cost- of-living increases, has fallen to 2.5 percent from a high of 4.1 percent in February.
The drop in the so-called breakeven rate shows investor expectations for inflation have fallen and means the central bank can instead focus on trying to stimulate growth, said Camilo Perez, head analyst at Banco de Bogota SA and the economist with the most-accurate record of forecasting Colombian monthly inflation in Bloomberg surveys.
The cost to protect Colombian debt against non-payment for five years was unchanged at 96 basis points, or 0.96 percentage point on Dec. 24, data compiled by Bloomberg show.
Credit- default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements. Markets were closed yesterday.
‘Most Proactive’
The extra yield that investors demand to own Colombian government dollar bonds instead of Treasuries narrowed one basis points to 112 basis points, according to JPMorgan Chase & Co. Yields on Colombia’s dollar bonds due July 2021 were unchanged at 2.34 percent.
The Colombian central bank board is “probably the most proactive and successful at managing their economy in Latin America,” said Daniel Snowden, emerging-markets analyst at Informa Global Markets in London.
“The bank is very good at managing its priorities; at the moment growth is a priority because inflation is under control.”
bloomberg.com
The fixed-rate bonds due 2013 have gained 6.3 percent this year, versus 1.9 percent for similar-maturity inflation-linked bonds, the third year the fixed-rate bonds outperformed the so- called linkers.
Consumer prices rose 2.77 percent last month, the lowest since 2010 and less than the 3.5 percent year-end estimate from economists in a central bank survey in January.
Central bank Governor Jose Dario Uribe has brought inflation closer to its target than any other major economy in Latin America, enabling the Andean nation to cut interest rates last week for a second straight month to 4.25 percent.
With economists forecasting that inflation will remain close to 3 percent next year, the rally in fixed-rate securities will continue into 2013, according to Global Securities Colombia SA.
“The fundamentals are very positive for fixed income with low inflation, fiscal accounts under control, and the economy slowing,” Daniel Escobar, head analyst at Global Securities in Bogota, said in a Dec. 21 telephone interview.
“You assume the central bank has the space to cut rates, and that’s positive for government debt.”
Yields on fixed rate bonds maturing in April 2013 have fallen 147 basis points to 4.31 percent this year. The yield on inflation-linked bonds maturing March 2013 rose 302 basis points to 2.308 percent over the same period.
Lowest Rates
Colombia’s central bank has cut its benchmark rate at four of its last six board meetings, citing the weakening global economy and below-potential domestic growth, giving Colombia the lowest borrowing costs in the region alongside Peru.
“Inflation, the average of core inflation indicators and most measures of inflation expectations are below 3 percent,” policy makers said Dec. 21 in the statement accompanying their rate cut.
“The latest information suggests that this situation will continue for some time.”
The central bank declined to comment in an e-mailed statement.
Colombia’s inflation rate in November was 0.23 percentage point away from 3 percent, the mid-point of the central bank’s target range.
In Peru, inflation was 0.66 percentage point higher than the mid-point of the target, while consumer prices in Chile rose 0.9 percentage point less than target.
‘Expansionary Policy’
“All next year, inflation will be testing the floor of the bank’s range, which will give them all the liberty in the world for expansionary policy,” said Felipe Campos, head analyst at Alianza Valores brokerage in Bogota.
The yield gap between inflation-linked bonds and fixed-rate debt due in 2015, a gauge of investors’ expectations for cost- of-living increases, has fallen to 2.5 percent from a high of 4.1 percent in February.
The drop in the so-called breakeven rate shows investor expectations for inflation have fallen and means the central bank can instead focus on trying to stimulate growth, said Camilo Perez, head analyst at Banco de Bogota SA and the economist with the most-accurate record of forecasting Colombian monthly inflation in Bloomberg surveys.
The cost to protect Colombian debt against non-payment for five years was unchanged at 96 basis points, or 0.96 percentage point on Dec. 24, data compiled by Bloomberg show.
Credit- default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements. Markets were closed yesterday.
‘Most Proactive’
The extra yield that investors demand to own Colombian government dollar bonds instead of Treasuries narrowed one basis points to 112 basis points, according to JPMorgan Chase & Co. Yields on Colombia’s dollar bonds due July 2021 were unchanged at 2.34 percent.
The Colombian central bank board is “probably the most proactive and successful at managing their economy in Latin America,” said Daniel Snowden, emerging-markets analyst at Informa Global Markets in London.
“The bank is very good at managing its priorities; at the moment growth is a priority because inflation is under control.”
bloomberg.com
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