Fixed Income Forum

Months of contentious electoral campaigning for the presidential elections in Colombia have led to increased risk and volatility in sovereign credit risk as measured by CDS spreads, as fears of political instability gripped the country. More recently, the country seems to have found some respite following the results of the elections that occurred this past Sunday, May 29th.

The rise in perceived credit risk by investors beginning in mid-April is likely attributed to polling results from independent sources which tabulated an increasing likelihood of a majority win for the anti-establishment candidate, Gustavo Petro.

The elections resulted in a runoff that will take place on June 19th between the two candidates with the most votes. This outcome has been received positively by investors, giving a 7% lift over the next trading day after elections to the iShares MSCI Colombia ETF ($ICOL) and consolidating an 18% increment over the previous three-month low observed in the weeks leading to the opening of the voting. Further, sovereign credit risk decreased from the fear induced highs as represented by 5yr CDS spreads that decreased 22% from the three-month high of 275bps that occurred a few days before the election.

Data provided by Solve Advisors Inc

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