Chilean Bond Yields Slide on Rate Outlook; Colombia Peso Drops

Bloomberg, by Drew Benson

Feb. 2 (Bloomberg) — Chilean bond yields dropped to their lowest in eight months on forecasts the central bank will cut its key lending rate by another full percentage point next week.

“Chile’s economy is decelerating very quickly and inflation is coming down as well, with inflation expectations adjusting even faster,” said Benito Berber, an economist at RBS Greenwich Capital Markets in Greenwich, Connecticut. “They are going to continue to cut at a pace of 100 basis points,” at the monetary authority’s next meeting on Feb. 12.

The central bank will lower rates to 6.25 percent from 7.25 percent, according to the median estimate of seven economists surveyed by Bloomberg News. Policy makers unexpectedly cut the overnight rate by a full percentage point on Jan. 8 after prices fell in December at the fastest pace since 1966.

The yield for a basket of five-year peso bonds in inflation- linked currency units, known as unidades de fomento, dropped 15 basis points to 2.55 percent at 2:10 p.m. New York time, its lowest since May 23, according to Bloomberg composite prices. A basis point is 0.01 percentage point.

Berber expects Chile’s central bank to cut the lending rate to 4 percent during the second quarter and hold it there for the rest of the year.

Chile’s peso slid for a third day, dropping 1.5 percent to 626.25 per U.S. dollar, from 616.85 on Jan. 30.

Colombian Debt Swap

In Colombia, bonds were little changed amid news the government this week will give investors peso-denominated notes due between 2012 and 2018 in exchange for securities maturing between 2009 and 2011.

The Finance Ministry didn’t say how much debt it plans to swap. Results of the exchange will be released Feb. 4, the ministry said.

“They are trying to build up liquidity along the curve and extend debt maturities,” said Siobhan Morden, a Latin America debt strategist at Royal Bank of Scotland in Greenwich, Connecticut. “Unless it’s a large-size transaction and has a meaningful impact on yields, it’s a non-event from a foreign perspective.”

Felipe Munoz, a trader at Bogota-based brokerage Corredores Asociados, predicts investors will exchange between 500 billion pesos ($204.5 million) and 800 billion pesos of notes. “This will make payments much more comfortable for the government,” he said.

Bonds Little Changed

The yield on Colombia’s benchmark 11 percent bonds due in July 2020 climbed less than one basis point to 9.79 percent, according to Colombia’s stock exchange.

Colombia’s peso declined for a fifth day to its weakest point since July 2006 amid a rout of most major Latin American currencies as the deepening global recession sapped investor appetite for riskier emerging-market assets.

Colombia’s peso slid 0.4 percent to 2,446.5 per dollar from 2,435.8 on Jan. 30, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. It touched 2,464.

Argentina’s peso slid to its weakest since December 2002, declining 0.1 percent to 3.4903 per dollar, from 3.4885 on Jan. 30.

The yield on the country’s inflation-linked peso bonds due in December 2033 rose 17 basis points to 16.72 percent, according to Bloomberg prices.

In Peru, the sol weakened for a fifth day, declining 0.5 percent to 3.2015 per dollar from 3.1865 on Jan. 30. The central bank bought $85 million worth of the currency. Last month it bought $675.5 million.

The yield on Peru’s 8.6 percent sol-denominated bond due in August 2017 rose 14 basis points to 7.22 percent, according to the local unit of Citigroup Inc.

Markets were closed in Venezuela for a national holiday.

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