Sunday, February 28, 2021

Colombian Peso Advances From One-Week Low on Appetite for Yield

Colombia’s peso rose from a one- week low as better-than-forecast U.S. earnings and speculation European policy makers may revive bond purchases buoyed demand for higher-yielding, emerging-market assets.

The peso advanced 0.3 percent to 1,787.83 per U.S. dollar, extending its gain this year to 8.4 percent, the best performance among 25 emerging-market currencies tracked by Bloomberg. It touched 1,799 yesterday, the weakest level since March 29.

“Global markets are on a more positive note today, helping gains in the peso,” said Daniel Velandia, head analyst at brokerage Correval SA in Bogota. “Investors are taking advantage of the recent declines in the peso to sell at levels we likely won’t see a lot of.”

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Stocks in Europe and the U.S. rose as Alcoa Inc. opened the earnings season with an unexpected profit and as Spanish bonds gained after a European Central Bank official signaled the ECB may restart its bond-purchase program.

The peso touched a six-week low on March 29, a day after Finance Minister Juan Carlos Echeverry said the central bank should consider boosting dollar purchases and study possible “surprise” moves to halt the currency’s advance.

Speaking to lawmakers yesterday, Echeverry said the government and the central bank want to avoid job losses stemming from the peso’s rally and that Colombia needs to consider “all the alternatives.” In an April 8 opinion column published in El Tiempo newspaper, Echeverry said the currency has reached a “worrying” level.
‘Verbal Intervention’

The central bank has said it will purchase a minimum of $20 million daily in the spot market until at least Aug. 4 in a bid to stem the peso’s rally.

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Echeverry’s “verbal intervention” is helping ease gains in the local currency, Velandia said.

“As the peso strengthens toward 1,770, people start betting on higher odds of more measures,” he said.

The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 fell five basis points, or 0.05 percentage point, to 7.1 percent, according to the central bank. The price rose 0.452 centavo to 123.188 centavos per peso.

Colombia’s borrowing costs fell at an auction of fixed-rate securities today after inflation unexpectedly slowed in March, boosting appetite for the bonds.
Bond Auction

The government sold peso bonds due August 2026 to yield 7.3 percent, the Finance Ministry said in a statement, down from 7.39 percent at the last auction on March 28. Colombia also sold bonds due October 2018 to yield 6.63 percent, down from 6.75 percent while the yield on the June 2016 securities fell to 6.23 percent from 6.36 percent, according to the statement.

Annual inflation slowed to 3.4 percent in March, the national statistics agency said in an April 4 report, down from 3.55 percent in February and less than the 3.63 percent median estimate among economists surveyed by Bloomberg. Banco de la Republica targets inflation between 2 percent and 4 percent this year.

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“Investors have been cutting their inflation bets,” said Velandia. “People were expecting high inflation readings between January and April and that didn’t happen.” Velandia said he will likely revise his 3.5 percent year-end inflation forecast to about 3.4 percent.

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