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Review 10Y Auction, Small Tail

JPMorgan Views On The Downgrade

COLOMBIA
  • While the earlier timing and that S&P moved first came as a surprise, the rationale less so. Markets may be on the back foot as S&P had reaffirmed the ratings less than a month ago, leading some to think that Colombia was out of the woods from the agency for now.
  • Some mitigating factors such as a solid economic recovery, institutional strengths and continued efforts at a gradual fiscal consolidation likely underpinned the stable outlook
  • Yet, they think that 'big picture' S&P focused more on the likelihood that the political/social backdrop and building spending pressures would yield the size of adjustment needed to stabilize debt over the coming years, and came up short, rather than the exact decimal points and details of the revenue measures of the fiscal package being debated.
  • It is highly likely that Fitch will choose to join them once the fate of the fiscal package is clarified, probably in 3Q, becoming the second agency to rate Colombia sub-investment grade