The comments flew somewhat under the radar, but on Wednesday,
Maria Fernanda Suarez, Colombia's director of the public credit
office, said her country expects "good news" from ratings
agencies at the end of the current quarter. Suarez made the
in an interview with Reuters
She did not go so far as to say she expects a credit rating
upgrade, but as Benzinga noted last year,
the South American nation is ideally situated to
garner a higher credit rating in the future
Moody's Investors Service and Standard & Poor's both
lifted Colombia's credit rating into investment-grade territory
in 2011. Moody's has a Baa3 rating with a stable outlook on
Colombia while S&P rates Colombia BBB- with a positive
outlook. On the S&P scale, Colombia has a better sovereign
rating than Argentina and Bolivia, among other South American
nations. At BBB-, Colombia is only notch below Brazil, Latin
America's largest economy.
Adding to the good news story are comment from Suarez that
indicate the country has tools at its disposal to prepay bonds
issued overseas as part of its effort to dampen the peso's rise.
Colombia's status as a major exporter of commodities such as oil
and industrial metals means the country's equity markets can be
crimped by a strong peso. Arguably, the peso's run is one reason
the Global X FTSE Colombia 20 ETF (NYSE:
), the largest Colombia-specific ETF, is dealing with a small
That loss could easily turn to an impressive gain if Colombia
again finds itself on the receiving end of positive ratings
agency chatter. Colombia's efforts to reduce yields on its
sovereign debt could also boost GXG and several
that hold Colombian debt.
Suarez told Retuers Colombia would like to see yields on
peso-denominated Treasury debt to levels that are comparable to
sovereign debt issued by Chile, Mexico and Peru. The yield on
government securities due in 2024 fell three basis points to 5.09
percent earlier today, the lowest levels since 2009,
according to Bloomberg
. That is still about six basis points higher than the yield on
the comparable Mexican debt. Peruvian 15-year bonds
carry a yield of just 4.22 percent
One ETF that could benefit from falling Colombian yields is
the Market Vectors LatAm Aggregate Bond ETF (NYSE:
). Often touted as a way of getting
exposure to Mexican debt
, BONO features two Colombian issues among its top=10 holdings.
Bonds denominated in Colombian pesos comprise eight percent of
The Market Vectors Emerging Markets Local Currency Bond ETF
), which features broader regional exposure, has a 3.8 percent
allocation to bond denominated in Colombian pesos. Colombia,
South America's second-largest economy, accounts for 3.3 percent
of the WisdomTree Emerging Markets Local Debt Fund (NYSE:
). As a region, Latin America represents almost 31 percent of the
actively managed ELD's weight.
Chile, Mexico and Peru all have higher credit ratings on the
S&P scale than Colombia has, but over the past three years
GXG has easily outperformed the comparable Chile ETF while
offering lower volatility than its Chilean, Mexican and Peruvian
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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