Colombia Risk Premium to Keep Falling, Skandia Says
COLOMBIA · MARKETS
Key Facts
- —What happened: Skandia’s Manuel García says Colombia’s investor risk premium should keep falling in the coming months.
- —How big: The cost of insuring Colombia’s bonds against default fell to about 141 points by mid-July, down from 232 in March.
- —What it means: García credits the government’s new fiscal plan for restoring confidence and cutting borrowing costs nationwide.
- —The catch: Even after that sharp drop, Colombia still costs more than Brazil to insure its debt against default.
- —What comes next: Government bond yields near 12% to 13% should fall further and ease costs for borrowers.
A Skandia executive says Colombia’s shrinking risk premium points to cheaper borrowing for the government and private business alike.
A financial group in Colombia expects the country’s investor risk premium to keep falling in the months ahead. Manuel García leads wealth management at Skandia and made the call this week.
A risk premium is the extra return investors demand to hold a country’s debt. A lower premium usually means cheaper loans for governments and companies alike.
García credited the government’s fiscal plan for the falling risk premium. He said a credible plan lowers borrowing costs and draws in more private investment.
Colombia’s borrowing costs used to track Mexico’s and sit well below Brazil’s, García said. That pattern reversed recently, making Colombia look riskier than Brazil for a while.
Why the Risk Premium Keeps Falling
Colombia’s government debt equals about 60% of the size of its economy, García noted. Even so, he said the government’s shift toward market-friendly policy is reassuring investors.
The cost of insuring Colombia’s bonds against default fell to about 141 points by mid-July. That is down from a peak of 232 points in March, according to La República.
The decline picked up speed after Colombia’s first-round presidential vote on May 31. Analysts credited hopes for a market-friendly government, La República reported.
García said high government borrowing is also squeezing out loans for private companies. He said that effect matters more than the central bank’s interest rate.
Banco de Bogotá’s chief economist linked the rally to hopes for fiscal discipline. Markets wanted proof the new government would follow through on its promises.
Colombia Still Costs More Than Its Neighbors
Colombia’s borrowing costs remain the highest among major Latin American economies, Portafolio reported. The gap between Colombia and Brazil narrowed from 86 points in March to just 16 points by mid-July.
Analyst Diego Montañez said financial markets still see Colombia as comparatively risky today. He said Colombia’s risk score remains historically high, even after this year’s improvement.
Credit rater S&P (Standard & Poor’s) puts Colombia’s debt at BB-, just below its safest tier. Moody’s rates Colombia higher, with a stable outlook from both agencies.
David Cubides of Banco de Occidente said Colombia’s risk premium had been unusually high. Munir Jali of BTG Pactual urged the government to pursue cheaper loans from multilateral lenders.
García pointed to car makers as one sign private investment is returning. He said multinational automakers are again discussing plans to assemble cars in Colombia.
García expects Colombia’s bond yields to keep falling from today’s 12% to 13% range. Lower yields would help the government and private borrowers pay less to raise money.
More: Colombia news in English, every day from The Rio Times.
Frequently Asked Questions
What is a risk premium?
It is the extra return investors demand to hold a country’s debt instead of safer options. A lower premium usually lowers borrowing costs for governments and companies alike.
Why does Manuel García expect Colombia’s risk premium to keep falling?
García of Skandia says the government’s credible fiscal plan keeps winning over investors. He expects that confidence to keep pushing bond yields and borrowing costs down.
How does Colombia’s risk premium compare with Brazil’s?
Colombia has long paid more than Brazil to insure its debt against default. That gap has narrowed sharply in 2026, with Colombia still pricier than Brazil.
Sources: Valora Analitik, La República, Portafolio, S&P Global Ratings, Moody’s Investors Service.
This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error
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