World inflation has generated several effects in the economies of the countries, apart from the impact on prices, but one that is not talked about much is the increase in the cost of borrowing for governments and companies and that in the case of Colombia it can be more intense.
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The reason is that having lost investment grade a year ago, the markets raise the country’s risk premium, generating a additional pressure on Colombian debt securities (TES) rates that are traded on the secondary market, and new issues, as well as private debt securities.
At the beginning of 2021 the rates of these titles in their references to 10 and 15 years were 4.84% and 5.92%, while today they are already at 10.32% and 10.58%, levels not seen since 2009.
But even, as analysts say, this could also hit domestic financial conditions that would be expressed in higher interest rates.
According to Bancolombia, the level of country risk, measured by the five-year Credit Default Swap against its sovereign rating of Colombia, is above 220 pointshigher than Brazil (also without investment grade) and far from Mexico, which is at 120 points and Peru and Chile, below the figure.
Edgar Jiménez, from the Financial Laboratory of the Jorge Tadeo Lozano University, says that TES rates “they have practically doubled in the last year, something that is delicate for the State and the new issues of titles”. In addition, “with increased risk aversion comes an accumulation of currency and that’s why the dollar rises,” he says.
It should be remembered that there is an inverse relationship between the interest rate and the price of fixed income papers. Thus, when rates rise, as is happening in the world at the moment, the prices of securities fall and their devaluation occurs, and when rates fall, the price rises and there is an appreciation of the paper.
For his part, Camilo Andrés Díaz Jiménez, Strategy Manager at Itaú Comisionista de Bolsa, says that in the local Fixed Income, the upward trend picked up again after some 10-year Treasuries in the US that continue to operate at highs for the year “and it seems very likely to see levels that exceed 3% with a target level close to 3.20%” and mentions that there are rises in the deposit rates of the banks “that have entered into a competition for resources by raising rates significantly, although on the one hand it seems that the demand for credit has influenced this event, we also consider that Some regulatory liquidity parameters within the framework of the Basel agreements have also given rise to competition for resources, especially in terms of more than 1 year, which also coincides with a very low bond issue that generally supplies some of the needs of this type”.
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Juan David Ballén, Director of Analysis and Strategy at Casa de Bolsa mentions that long-term TES “they have risen a little more than normal due to the loss of the investment grade because the risk premiums for having a lower rating the markets charge more and that is reflected in the primary and secondary markets” and also, that if Treasury bonds, which are the least risky and are a world reference, have risen, therefore, it also happens globally. He points out that the beneficiaries are those who have liquidity, since they find public debt rates at pre-2000 levels of up to 10% and more.
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