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EM Quickbyte: Colombian TES Bonds

Synopsis:

  • Foreign companies held only 18% of the US$135 billion in TES bonds in circulation at the end of the year, a significant decrease from their previous position as the largest holders at 27%. This decline has been driven by foreigners reducing their market position to the lowest level since February 2016. Factors both global and local have negatively impacted Colombian debt in local currency, with high risk premiums compared to other inflation-targeting countries in the region.
  • President Gustavo Petro’s financial management has caused nervousness among global investors, leading to a sell-off of Colombian bonds. The peso has depreciated significantly against the dollar, making it one of the worst-performing emerging market currencies. Petro’s proposed 9.5% increase in the minimum wage could delay inflation deceleration, affecting investor demand. Minister of Finance Diego Guevara has been trying to reassure investors by promising to maintain sustainable public debt.
  • The concerns surrounding Petro’s leadership, fiscal prospects, and economic policies have contributed to the negative sentiment among investors. The uncertainty has been further exacerbated by doubts about Petro’s proposed changes to the conservative economic model and concerns about fiscal revenues, government spending cuts, and unexpected increases in the minimum wage. The market is closely monitoring the developments in Colombia under Petro’s administration, which has led to a challenging environment for foreign investors in domestic securities.

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