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Morning Commentary: Colombia sovereign benchmark improves after downgrade
By Rebecca Melvin
New York, Dec. 19 – The Republic of Colombia’s 3 7/8% notes due 2027 remained higher early Monday a week after ratings agency S&P Global Ratings lowered Colombia's long-term foreign currency sovereign credit rating by a notch to BBB-, citing the South American country's weakened policy flexibility.
The Colombia 2027 notes, which are probably the most liquid of the sovereign curve, were seen at 102 bid, 102¼ offered, representing a ¾ point improvement over the last week since the downgrade news, a New York-based market source said.
The spread on the Colombia 2027s was tighter by 15 basis points since the announcement. “This is a non-event,” the market source said.
While market activity was thin given the holiday season and upcoming year-end, the downgrade didn’t really affect secondary trading levels, the source said. A bigger market influence will be the effect of elections, the source said, referring to Colombia’s upcoming presidential election in May.
Colombia's economy continues to suffer from the effects of lower commodity prices, reflected in its high level of external debt, the ratings agency said.
“Amid weakened fiscal and external profiles generating diminished policy flexibility, we are lowering our long-term foreign and local currency sovereign credit ratings on Colombia to BBB- and BBB from BBB and BBB+, respectively,” S&P said in a news release.
The sovereign priced a $1.4 billion add-on of the 3 7/8% global bonds at 100.456 to yield 3.816% in August, boosting the issue size to $2.4 billion from the original deal, which priced in January at 98.596 to yield 4.042%, or Treasuries plus 160 bps.
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