EM LATAM CREDIT: Colombia: Credit Ratings Cut - Positive
(COLOM; Baa3/BBneg/BB+neg)
"Colombia Cut to BB from BB+ by S&P"
"Moody's Ratings downgrades Colombia's ratings to Baa3 from Baa2, changes outlook to stable" - Bbg
One notch downgrade from each rating agency, which is negative, but less than the two notch downgrade we thought possible and Moody's left the outlook stable instead of negative.
Moody's acknowledged the deterioration in the fiscal situation but maintained its confidence in Colombia's institutional framework that offsets potentially damaging policy directives, a "stabilizing role" in their words.
S&P was less sanguine, which accounts for the lower rating and persistent negative outlook, as they note the use of the escape clause from the fiscal rule that leads fiscal policy with less of an anchor.
S&P also commented on the deteriorating security situation, mentioning the attack on opposition candidate Miguel Uribe, heightened violence in the country and porous border with Venezuela that allows criminal elements to influence Colombia.
The market trading levels had already anticipated numerous downgrades with yields approaching much lower rated El Salvador (ELSALV; B3/B-/B-) so if anything these latest rating downgrades might illicit a positive reaction.
COLOM 8% 2035 were last quoted T+367bp, 3bp tighter QTD and 35bp wider YTD.
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US DATA: Composite MBA Applications Dip As Swap Spread Re-Widens A Touch
- MBA composite mortgage applications dipped -1.2% last week (sa) after a heavier -5.1% the week prior.
- The breakdown was more mixed than usual, with new purchase applications rising 2.7% after -5.2% whilst refis saw further weakness with -7.1% after -5.0%.
- Relative levels: composite at 50% of 2019 average levels, new purchases at 63% and refis at 37%.
- The 30Y confirming mortgage rate increased 6bps to 6.98% as it started to reflect what has been a sharper climb in 10Y swap rates although one that fizzled out last week with no change in average rates for the latter.
- It saw the confirming rate to swap spread rise 6bps to 302bps having tightened 19bps from 3.15% to 2.96% in the first half of May.
BONDS: US and UK Roll pace (updated)
Roll pace Update, pretty much all done. All the Volume in US Treasuries is just spread related, and September is front Month.
- WNA: 86%%.
- USA: 87%.
- UXY: 81%.
- TYA: 82%.
- FVA: 82%.
- TUA: 81%.
- Gilt 95%.
OUTLOOK: Price Signal Summary - Bull Cycle In Bunds Is Intact
- In the FI space, recent gains in Bund futures suggest the move down between Apr 22 - May 15, has been a correction. A stronger resumption of gains would strengthen the reversal and signal scope for a climb towards 132.03, the Apr 7 high. This week’s climb reinforces a bullish theme. Key short-term support to watch is 129.13, the May 15 low. A break would be bearish and mark a resumption of the recent bear cycle.
- A bear cycle in Gilt futures remains in play and last week’s move lower reinforces the bearish theme. The contract has recovered from its recent lows - gains are considered corrective and this is allowing a short-term oversold condition to unwind. The bear trigger has been defined at 90.11, the May 22 low. Key short-term resistance to watch is 91.87, the May 20 high. It has been pierced, a clear break of this level is required to highlight a stronger reversal.
