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Colombia: Local Credit Institutions backed the TES COP market in Jul-18 amid the first outflow from foreigners since Jun-17

 

August 10, 2018 (Investorideas.com Newswire) According to the Ministry of Finance's latest report on TES holders, TES COP positioning by Institutional Investors rose by COP 3.55tn in Jul-18, while TES UVR holdings surged by COP 1.33tn. This month, there were no maturities of any reference, so net issuances stood at COP 4.89tn, slightly above the YTD average of COP 4.60tn. However, it stood way below the average when excluding months with maturities (COP 5.65tn), amid a deteriorating demand from foreign investors. In fact, the bid-to-cover ratio of TES COP auctions reached a minimum for a month of July (1.7) since foreigners got truly involved in the local public debt market in 2013/14 (see chart 1). In Aug-18, there will not be any maturities, while interest payments will moderate to COP 2.16tn (through the TES COP Aug-26 reference), from COP 4.83tn in Jul-18.

In Jul-18, foreigners posted their first net outflow from the TES COP market since Jun-17. Specifically, the holdings of TES COP dropped by COP 531.6bn, so demand from foreigners has consistently deteriorated since Apr-18 (COP +1.75tn, May-18: COP +454.2bn, Jun-18: +COP 87.0bn). In line with the mentioned above, the slowdown of foreigners' appetite has been aligned with the recent reduction of the bid-to-cover ratios in the TES COP auctions (see chart 1). Moreover, positioning in TES UVR fell by just COP 8.7bn, their second consecutive outflow.

The weaker activity of foreigners in the overall TES market came despite the recovery of portfolio flows towards Emerging Economies which, according to the IIF, reached USD +11.9bn in Jul-18, after two consecutive outflows in May/Jun-18 (USD -12.5bn on aggregate). In fact, Latin America contributed with USD 7.2bn inflows, while those were somewhat split between equity and debt markets (USD 4.2bn and USD 2.9bn, respectively).

Thus, we believe that the divergence observed in Jul-18 between the TES market and the rest of Latam (and EM) in terms of flows responded to the relatively strong drop of oil prices (Brent: -6.5%), which retreated from the USD 80 neighborhood last month. Moreover, a take profit stance may have been observed after Duque's victory in the presidential elections, and considering the rising Treasuries, which got close to 3% again recently. In any case, the volatility of TES (and overall local assets) continues to be low relative to Latam and EM peers, as local macro fundamentals continues to strengthen (i.e. early business cycle, healthier twin deficits and low political uncertainty).

Credit Institutions (CIs: Commercial Banks, Finance Corporations and Commercial Finance Companies) strongly increased their holdings of TES COP (COP +3.2tn), their highest inflow since Jul-17, while standing as the main net purchasing position among institutional investors during the month. This stance was partially explained by the increase of the NDF open interest which, according to BanRep's data, rose by COP ~1.1tn in Jul-18. Pension Funds increased their holdings of TES COP for the fifth straight month (COP 690bn), while doing so at their strongest pace since Aug-17. Thus, local players offset the deterioration of foreigners' demand in Jul-18.

The BanRep posted net purchases of TES for the second consecutive month (COP 74.6bn), while the MoF decreased its holdings by COP -164bn, almost the exact same opposite to the observed in Jun-18 (COP +165bn).

For details of other institutional investors, please refer to tables 1 and 2.

For charts, tables and the full report, see the pdf file

Daniel Velandia, CFA
+ (571) 3394400 ext. 1505
dvelandia@credicorpcapital.com

Camilo Durán
+ (571) 3394400 ext. 1383
caduran@credicorpcapital.com


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