The government contemplates the change of strategy after the interest on long-term debt increased after the withdrawal of the tax reform.
Colombia could begin to give more weight to sales of shorter-term debt to cover its fiscal deficit, seeking to reduce interest costs after a failed tax reform proposal that caused social protests and raised yields on paper.
The director of Public Credit, César Arias, an official of the Ministry of Finance who oversees debt sales, said in an interview that he will speak with investors to define a possible reduction in the maturities of some of the bonds he sells at auctions.
“The plan is to continue with what we have in terms of amounts. Something that we are beginning to discuss with the market is the optimal duration of the securities that are in the auction due to this circumstance of greater steepening in the curves and in the same appetite of investors. It’s possibly going to be shorter, ”Arias said.
The possible change comes after yields (interest) on long-term debt bonds surged when President Iván Duque abandoned his fiscal plan in May after sparking protests and forcing the then finance minister to resign. Last month, S&P Global Ratings downgraded the country’s foreign currency debt to speculative level as the government faces mounting deficits caused by the pandemic.
That bond market crash has weighed investors in Colombian peso-denominated debt with a loss of 11% this year in dollar terms, according to a Bloomberg Barclays index. That contrasts with an average gain of 0.2% for its emerging market peers.
However, Arias said foreign investors continued to be net buyers of the Colombian peso bonds, known as TES, in May. He indicated that foreigners bought 4.1 trillion pesos (US $ 1,100 million) in these values last month, the same amount as in April. About a quarter of local bonds are held by foreigners.
Shock resistant
Currently, Colombia offers every two weeks fixed rate bonds maturing in 2027, 2036 and 2050, and debt tied to inflation due in 2029, 2037 and 2049.
“The TES market has been resilient to shocks. Many have predicted capital outflows from the TES market and what the data shows is the opposite, ”Arias said.
Following the withdrawal of the tax reform bill, the new finance minister, José Manuel Restrepo, focuses on achieving a broad consensus before sending a new proposal to Congress. Arias reported that the new bill will probably include the elimination of the 5% tax on foreign holders of bonds in pesos.
Follow the news of El Espectador on Google NewsColombia could offer its first green bonds in the local market since July, according to Arias. The Ministry will issue up to 2 billion pesos in papers that will finance projects that include renewable energy generation and to combat deforestation.
According to Arias, the offer will be carried out through auctions or via syndication through book construction. As of mid-June, the Ministry will begin to “market” the bonds to determine the moment of issuance and their maturity, he said.
Sovereign bond ETFs
The Finance Ministry has also been working on a plan to launch a stock exchange fund, or ETF, which, according to Arias, could expand the buyer base of its peso bonds by attracting individuals as investors.
The launch is scheduled for the first half of 2022, when it would begin trading on the country’s stock exchange, according to Arias. Later, it will also be able to operate on the platform known as MILA that integrates the Chilean, Colombian, Mexican and Peruvian stock exchanges.
After selling a net US $ 1.6 billion in bonds in the foreign market in January and US $ 3 billion in April, Colombia has completed 90% of its planned foreign bond offerings for this year, Arias confirmed. But he added that he does not anticipate difficulties in entering the market once again for the remaining amount “if necessary.”
