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Colombia’s markets are under pressure after second downgrade to ‘garbage’

By Rodrigo Campos and Marc Jones

Jul 2 (.) – Colombia’s markets came under pressure on Friday, a day after Fitch became the second major rating agency to downgrade the credit rating to ‘junk country’.

Fitch’s move came after S&P Global’s loss of investment grade status in May.

The country is now rated below investment grade by two of the world’s top three agencies, which could force some holders of Colombian debt to sell.

The premium demanded by investors to hold Colombia’s debt on U.S. Treasury securities as a safe haven rose 6 basis points (bps) to 256 bps, its highest level since early October 2020, the JPMorgan EMBI index showed. .

Five-year credit default swaps rose 6bps to 143bps, according to IHS Markit data, while the Colombian peso trimmed losses from early local deals.

The rating downgrade “was largely expected and justified given recent fiscal, political and social developments, and the deterioration of the policy implementation context,” Alberto Ramos, Goldman Sachs chief economist for Latin America, said in a note. .

With the increase in fiscal, political and social risk premiums and the worsening outlook for inflation, the “degrees of freedom of the Central Bank of Colombia to preserve a high level of monetary accommodation have been considerably reduced,” he added.

The market is also expecting a downgrade from Moody’s, which still has Colombia two notches in the investment grade category.

(Report by Rodrigo Campos and Marc Jones. Edited in Spanish by Luis Jaime Acosta)

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