Colombia May Sell First 20-Year Bonds; Yields Fall (Update2)

BLUE CROWN FUTURES

By Andrea Jaramillo

Jan. 23 (Bloomberg) -- Colombia may sell peso bonds with maturities as long as 20 years for the first time in the domestic market as slowing inflation and falling interest rates fuel demand, a Finance Ministry official said.

The government is considering selling debt due in 2024 or 2029 by June as interest from pension funds and insurers for longer maturities picks up, said William Ortiz Linares, head of local debt sales at the ministry. Colombia has never sold a fixed-rate bond in the local market with a maturity longer than 15 years. The ministry hasn’t decided whether the new bond would have a fixed interest rate or be linked to inflation, he said.

“The conditions are being created” for the sale, Ortiz Linares, 46, said in a telephone interview from Bogota. “There’s a lot of liquidity and investors have indicated they are interested in longer-term risk.”

Colombian bonds gained today, sending benchmark yields to 18-month lows, on speculation the government’s push to extend maturities will help it earn investment-grade credit ratings. The yield on the benchmark bonds due in 2020 touched 9.71 percent, the lowest since July 2007.

“Rating agencies look very favorably on a country selling as much as it can in longer-maturity debt,” said Alberto Bernal, head of emerging-market macroeconomic strategy at Bulltick Capital Markets in Miami. “It’s a vote of confidence.”

Rate Reduction

The South American country’s foreign debt is rated BB+, one level below investment grade, by Standard & Poor’s and Fitch Ratings. Moody’s Investors Service also rates the nation one grade below investment quality at Ba1.

Banco de la Republica was the first central bank in Latin America to lower its benchmark lending rate amid the global credit crisis, anticipating the worldwide recession would curb growth and push down inflation in Colombia. Inflation will slow to 5 percent this year from 7.7 percent in 2008, the government forecast this week. The ministry cut its growth forecast to 3 percent from 5 percent for the year.

Central bankers trimmed the benchmark rate a half percentage point to 9.5 percent on Dec. 19, the first reduction in three years. Policy makers will cut the rate again at a Jan. 30 meeting, to 9 percent, according to the median forecast of 12 economists surveyed by Bloomberg News.

‘Very Attractive’

Colombian bonds have rebounded in recent months after yields soared to the highest in at least three years when the global crisis deepened in October. The yield on the 11 percent bonds due in 2020 has declined 4.06 percentage points since Oct. 24 to 9.72 percent at the close of trading today, according to Colombia’s Stock Exchange. The bonds’ price climbed to 108.508 centavos per peso from 83.29 in October.

“Slowing inflation, Banco de la Republica cutting rates and ample liquidity are making peso bonds very attractive,” said Camilo Perez, head economist at Banco de Bogota SA, Colombia’s second-biggest bank. “Under those conditions, investors want to invest especially in long-term debt.”

While Colombia hasn’t sold fixed-rate peso bonds with maturities over 15 years in the local market, it did sell a 20- year peso-denominated bond in international markets in June 2007.

“At least until last year, the search for yield and expectations of a weakening dollar led foreigners to have more faith in the value of the peso than locals did,” Bernal said.

Mexico, Peru and Colombia have sold the longest-term local- currency fixed-rate securities in their domestic markets, he said. There may be a pick-up in longer-term debt sales across Latin America this year as inflation slows, Bernal said.

New 10-Year Bond

“If I were the Colombian government, I’d sell a 20-year peso bond now,” said Bernal. “I’m sure the market is willing to take it in.”

The ministry is adjusting its menu of short-term bonds in auctions scheduled over the next month, said Ortiz Linares, who has run the local debt sale department for the past four years.

In the next auction of fixed-rate peso bonds, slated for Jan. 28, the government will issue new securities due in August 2012 and will halt sales of notes due in May 2011, according to Ortiz Linares. The ministry will also stop selling its November 2013 bonds after this month and will replace them with notes due in May 2014, he said. Colombia may issue a new 10-year benchmark bond in the first half of the year to replace the October 2018 bonds it’s currently offering, he said.

“We’re seeing if it’s better for us to issue a 10-year bond and a longer benchmark or just go with the longer one,” said Ortiz Linares.

Colombia plans to sell 22 trillion pesos ($9.6 billion) worth of peso securities in 2009, the ministry said this week. The government got an early start on meeting its 2009 financing needs by selling 2 trillion pesos of local bonds in December.

To contact the reporters on this story: Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

Last Updated: January 23, 2009 16:48 EST