*New carry and roll-down summary slide has been added (slide 3)
Summary: Commercial Banks, Pension Funds, and Insurance Companies made up the bulk of COLTES buyers in December. Public entities, International Investors, and Hacienda accounted for just about all the selling flow during December, with some minor net outflows from public trusts and mutual funds, although this last group sold COP1.3trn of nominals, which was mostly offset by inflows of COP0.8trn into linkers. The nominal TES market saw supply expand by COP2.5trn, which was absorbed by the aforementioned key players. Pension funds ended the year as the largest buyers of COLTES at COP41.4trn or c. 50% of 2024 net issuance. Commercial banks followed at COP28.8trn and Insurance companies accounted for COP17.6trn. BanRep was the largest net seller (-COP14.7trn), followed by International investors (-COP4.7trn). Across the largest local market players, allocation shifts clearly favoured nominals versus inflation linkers.
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Market view: COLTES continued to underperform in December, amid unrelenting domestic fiscal noise but compounding external/core yield pressures. All of this has created a challenging environment for Colombian bond yields, resulting in broader international investor outflows. December’s core CPI YoY showed continued signs of reversion from key components such as imputed rents. In addition, annualised CPI could see added support from negative base effects during 1H25. As a result, BanRep may start to shift more dovish by the end of 1Q (after its upcoming board changes). Our economists see BanRep’s terminal rate for the cutting cycle reaching 6.50%, meanwhile the market is assigning a terminal rate of close to 8.50% in swaps, up from 7.70%. Given the substantial recent sell-off, and near-term catalysts for rallies in rates, coupled with the highest hedged yield in LatAm, a turn in core rates paired with improving inflationary conditions and a more dovish BanRep by 2Q could provide scope for a considerable rally in COLTES. This is a constructive shift from our previously cautious stance on local yields back in November and December. We flag April 2028s and March 2031s as offering the higher carry and rolldown on the nominal curve.
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International investors sold c.COP1.8trn of COLTES in December 2024. As a result, holdings fell to 17.7%, from 18.1% in November 2024, and remain close to their lowest level since February 2016. UVRs accounted for 30% of the net monthly selling.
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Pension funds, although not the largest buyer in the month, continued to buy a notable amount of COLTES in November, with inflows of c.COP2.6trn, growing allocation by 1.4pp and overall holdings from 31.9% to 32.3%. Once again net purchases were all in COLTES B (Nominals) with some net outflows in COLTES UVR (Inflation linkers).
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Public Entities were the largest sellers of COLTES with COP1.8trn in net sales, all driven by outflows from nominals. This has shifted their holdings lower from 1.2% to 0.8% of the COLTES market.
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Local banks were the largest net buyers for the second month in a row, buying c.COP4.2trn during December, taking holdings from 15.3% to 15.9%. The breakdown shows most of the inflows going to nominal COLTES (c.COP3.8trn).