(Adds comments from Moody‘s)
By Paul Kilby
NEW YORK, Oct 3 (IFR) - Colombian US dollar bonds were opening multiple points lower on Monday after the country narrowly rejected a peace accord with FARC rebels over the weekend.
The sovereign’s 2026 bonds had fallen 1.875 points to 108.40-109.15, while the 2045s were 3.125 points weaker at 104.90-105.90, according to a US based trader.
The market had been largely bullish on the oil exporting country following a rebound in crude amid expectations that the sovereign would soon reap a peace dividend from the end of Latin America’s longest running civil war. But the surprise no vote took investors off guard.
“With the rally in crude oil, Colombia had been favored again and (the no vote) is catching people long and wrong,” the trader told IFR.
Bonds issued by state-controlled oil company were also being hit despite oil prices breaching US$50 a barrel on Monday - their highest level since August.
The company’s 2025s had slipped about 1.75 points to hit 95.00-96.00, while the 2045s were about 2.5 points lower at 89.25-90.25, the trader said.
President Juan Manuel Santos’s failure to sway the populace to back his peace plan is expected to complicate the outlook for fiscal reform.
“It had been expected that Santos would use (the peace accord) as a platform to launch his fiscal reform, which would be positive for the credit and its ratings, and this has put a wrench in that,” said the trader.
While the government is likely to present its fiscal package by October 10 to avoid a ratings downgrade, political uncertainty will likely cloud the scope of reforms, Nomura said in a report on Monday.
“We expect turbulence down the road, given the direct consequences over the fiscal reform,” the bank said.
Rejection of the peace deal will not impact Fitch’s ratings for the country, Reuters quoted the agency’s sovereign ratings director Erich Arispe saying on Monday.
Fitch has the country’s BBB rating on a negative outlook, which Arispe said was largely due to external conditions such as the fall in the price of crude.
S&P has a long-term issuer rating of BBB on Colombia, with a negative outlook, while Moody’s rates it Baa2, with a stable outlook.
“Colombia’s plebiscite is negative for its credit profile,” Samar Maziad, a senior analyst at the agency said in an email on Monday.
Colombians’ rejection of the peace deal will undermine the passage of fiscal reforms that are necessary to address the shortfall in oil-related revenues, he said. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)