(Bloomberg) — Colombian bonds rallied after a group of some of the world’s largest banks bought outstanding notes with a face value of $5.4 billion, closing a tender offer that is likely part of a sweeping debt management operation by the South American nation.
Banco Bilbao Vizcaya Argentaria, Banco Santander, BNP Paribas, Citigroup Global Markets, Goldman Sachs Group Inc. and JPMorgan Chase & Co. bought notes across Colombia’s US dollar-denominated curve maturing from 2027 to 2061, according to a statement by their depositary agent.
Government bonds jumped on Friday, with notes maturing in 2053 rising almost two and half cents to trade at around 109 cents, the highest level in almost a year, according to indicative pricing data compiled by Bloomberg. The notes were the top performers in emerging markets.
The purchase is intended to hedge potential total return swap transactions between the banks and Colombia, allowing the country to save coupon payments while paying interest to the banks that bought its debt. Although the precise terms of the swaps are unclear, they may give Colombia more flexibility by allowing it to make interest payments in non-dollar currencies.
“Overall, I think the operation has been successful,” said William Snead, a strategist at Banco Bilbao Vizcaya Argentaria. Moreover, “some of the proceeds from the tender are likely to be re-invested along the Colombian curve creating some demand” as the notes remain cheap compared with similarly rated debt.
The aggregate purchase price for the bonds was around $4.6 billion, not including accrued and unpaid interest, the banks said, showing they paid a discount to face value. The agreement binds the banks and Colombia to one or more total return swap transactions, they added.
The move is part of a larger financing plan by the Colombian government as it attempts to ease its debt burden. The tender offer was announced only weeks after Public Credit Director Javier Cuellar said the government is seeking to borrow as much as $10 billion in Swiss francs to repurchase more expensive liabilities in a bid to rein in its debt costs.
“So far, they have won as they have squeezed the market,” said Soeren Moerch, a portfolio manager at Danske Bank AS in Copenhagen who holds Colombian debt. The government is “getting what they aimed for — lower yields and lower spreads.”
The deal comes as Colombia faces growing fiscal strain, fueled by moves by President Gustavo Petro to increase spending as he enters his final year in office. The budget deficit is expected to reach 7.1% of gross domestic product in 2025, the widest gap since the pandemic.
However, the short-term technicals favor the bonds, Snead said. “They have also indicated that they expect to issue EUR bonds, which is another positive for the Colombian USD curve.”
(Updates bond move starting in the first paragraph, adds analyst comments starting in the fifth.)
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