Latin America Bonds: Colombia Peso Debt Drops Most in Two Years

By Andrea Jaramillo

Sept. 18 (Bloomberg) -- Colombia's peso-denominated bonds dropped the most in two years amid concern a global financial crisis will deepen.

``The world is in risk re-pricing mode,'' said Alberto Bernal, head of emerging market research with Bulltick Capital Markets in Miami. ``Although Latin America is in much better shape to weather an international storm, that doesn't mean it's immune.''

The yield on Colombia's benchmark 11 percent bonds due in July 2020 rose 51 basis points, or 0.51 percentage point, to 12.5 percent at 11:44 a.m. New York time, according to Colombia's stock exchange. The bond's price plunged 2.93 centavos to 90.895 centavos per peso, its biggest drop since June 28, 2006.

The peso dropped 1.6 percent to 2,200 per dollar, from 2,166.1 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX. The currency touched 2,205, its weakest since March 2007.

The peso has slipped 6.8 percent this week following the record bankruptcy filing by Lehman Brothers Holdings Inc. and the government takeover of American International Group Inc., the largest U.S. insurer.

The world's biggest central banks, including the U.S. Federal Reserve and the European Central Bank, agreed to pump as much as $247 billion into the financial system in a bid to stem the worst financial crisis since the 1920s.

Central Bank Dollar Purchases

Colombia's central bank has been buying $20 million a day in the currency market as part of a plan announced in June to accumulate international reserves. The bank will likely scrap the plan if the peso weakens to about 2,300 or 2,400 per dollar, said Juan Pablo Barney, a foreign-exchange trader at Banco Bilbao Vizcaya's Colombia unit in Bogota.

``It's a good thing to accumulate international reserves, especially in times of uneasiness, but once the weakening peso creates inflationary problems, the bank will have to change its plans,'' Barney said.

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