BOGOTA: Colombia will offer shorter-maturity bonds and euro-denominated debt in an overhaul of its financing strategy, according to the nation’s new public credit director.
When issuing the local peso bonds known as TES, the treasury will concentrate more on notes with maturities of between five and ten years, as part of a plan designed to attract more foreign investors.
This is the “sweet spot” of the yield curve for investors seeking higher risk-adjusted returns, incoming credit chief Javier Cuellar said.
“I’m going to try to offer notes with shorter durations so that offshore investors can buy,” Cuellar said in his first interview as the head of President Gustavo Petro’s financing strategy.
“That’s where we should be issuing, because there’s a demand that could be two or three times greater than what we have.”
Local bonds rose after the news, leading Latin American peers on Tuesday, with the longer maturities outperforming the rest of the curve.
Notes due in 2046 gained for a second day, sending the yield down to 12.89%. The nation’s dollar bonds were also among the best performing debt in emerging markets.
“The finance ministry’s intention to issue debt in the five-year and 10-year buckets is positive for long bond holders as supply in that longer maturities will be limited,” William Snead, a strategist at Banco Bilbao Vizcaya Argentaria said.
The nation’s local-currency bonds lost 2.7% in March, the worst in an index of emerging markets after Turkiye.
This compares to a 0.3% loss posted by local notes in the developing world during the same period, as the weakness of the United States economy has been fuelling a broader rally in riskier assets.
Keeping foreigners invested is key to preventing the government’s interest costs from continuing on their recent upward trend.
Cuellar takes over with investors nervous about the government’s ability and willingness to rein in a fiscal deficit which widened to 6.8% of gross domestic product last year, the most since the pandemic.
Foreign investors have recently pared their TES holdings to 17% of the approximately US$122bil of TES outstanding, the lowest proportion since 2016.
The sovereign wealth funds of Singapore, Norway, and Saudi Arabia, Netherlands pension manager Stichting Pensioenfonds ABP, and Canada’s Caisse de Depot et Placement du Quebec are among the largest overseas holders of TES.
Local pension funds own about 32% of the total. Commercial banks increased their local bond purchases by more than 40% last year, after a jump in non-performing loans led them to seek to pare risk.
However, central bank interest rate cuts have brightened the credit outlook, meaning they may now start to wind down their TES holdings to seek better returns elsewhere.
“I have to identify who the marginal buyer is,” said Cuellar.
Since pension and trust fund managers are nearing the limit of the amount of TES they want to hold, the ministry needs to seek out other buyers, including foreign funds, Cuellar added.
Cuellar, a certified chartered financial analyst who studied at the London School of Economics, previously worked at the asset manager State Street Corp and as a portfolio manager at the Colombian guarantee fund for financial institutions, known as Fogafin, according to the resume posted on his LinkedIn page.
Cuellar said that shortening the average duration of bonds increases refinancing risks, but said that the average maturity almost doubled between 2012 and 2024, making this more manageable.
Colombia is currently offering peso and inflation-linked bonds maturing from 2041 to 2055 in weekly auctions this year. To implement the new strategy, the finance ministry will change its offering schedule, he said.
“If we continue with securities maturing in 2046 and 2050, in less than six months, the yields on that part of the curve will reach 15%,” he said. Euro Curve Colombia will also try to diversify its financing sources by offering bonds in foreign currencies other than the dollar, he said. — Bloomberg
