When governments talk, markets react

COLOMBIA - In Brief 19 Oct 2022 by Andrés Escobar Arango

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At the beginning of 2022, Colombian Treasury Bills (TES - for its acronym in Spanish) outstanding were close to COP 400 trillion (tn); currently, they are reaching almost COP 450 tn. Hence, the government has issued TES handsomely, continuing a high-sloping trend exhibited since COVID hit the economy at the beginning of 2020 (Figure 1). Figure 1. Colombian TES outstanding, 2010-2022 Source: Minister of Finance. Figure 2. Colombian TES rates, 10-year (%) Source: Minister of Finance. Figure 3. 10-year Colombian Global Bond rates (%) Source: Investing. The interest rate on 10-year TES went from 11.5% at the end of June of this year to close to 13.5% currently. During the same period, the rate on Global bonds went from 11.5% to 14.4%. Something similar was observed in Ecopetrol's bonds, as well as in its ADRs, that plunged in New York from $13.5 dollars to $9. During the second week of October the 10-year TES interest rate jumped by more than one hundred basis points. The last TES auction did not go well because foreigners, usually a key he source of demand, basically did not show up. When local banks, the market-makers, attempted to sell there was a stampede, which triggered a fall in TES prices. The source of this market bittering could be partially attributed to President Petro’s tweet on the possibility of imposing taxes on capital flows to alleviate pressures on the Central Bank to hike (vertical red line in Figures 1 to 3). However, this has not been the only worrisome announcement of Petro or his ministers. They have mentioned things like not issuing new licenses for oil and gas exploration and exploitation, banning fracking, transferring a substantial share of priv...