EM LATAM CREDIT: Colombia: Presidential Frontrunner Banned – Positive
(COLOM; Baa3/BBneg/BB)
• President Petro’s handpicked successor, left-wing candidate Ivan Cepeda, will still be allowed to run in the presidential election representing the Historic Pact party but was banned from the primaries. A competing left-wing candidate will be selected for the general election on March 8th and that could potentially split the vote, though so far among the leftist coalition there isn’t a candidate close to the popularity of Cepeda. We posted on the polls prior to this news that showed Cepeda far in the lead: https://mni.marketnews.com/4kmtC8C
• Hope for regime change amid deteriorating fundamentals has led to a bounce higher in Colombia bond valuations. COLOM 35s were quoted $107.57 6.9% YTW G-Spd 267bp, 20bp tighter YTD and 12bp tighter since Sept. 30, 2025. That compares with much lower rated El Salvador (ELSALV; B3/B-/B-) 35s at a 7.20% yield. That is still a narrow differential relative to ratings but a bit better than a week ago when the pair were quoted equal yield.
• Colombia’s fiscal situation has gotten worse with the failure of tax reform, higher spending, a 23% hike in the minimum wage, inflation pressures and a central bank 100bp hike in the policy rate that will likely raise borrowing costs. A positive catalyst could be regime change but what is needed now is a viable competitor for the left against the ruling party that could significantly split the vote in the general election.
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Historical bullets
EUROPEAN INFLATION: How significant is the slowdown in German inflation?
- We would caution reading too much into the German CPI print as there appear to be some strange seasonals in December last year.
- Of the five prior December M/M prints since 2020 was have seen -0.4%M/M in 2022, +0.5% in 2024, +0.1% in both 2020 and 2023 and +0.2% in 2021.
- The print this year was flat M/M (0.0%M/M) and therefore a little softer than those seen in most prior years, but notably softer than in 2024.
- Looking at a 2-month change, Nov24-Jan25 was 0.3%, Nov23-Jan24 was 0.3% and Nov22-Jan23 was 0.5% (before that CPI was more substantially above target).
- If we were to see a 0.3% increase between Nov25 and Jan26 that would imply a January M/M reading of 0.3% and return national CPI to 2.3%Y/Y (the same level as in November).
EUROPEAN INFLATION: German National Level CPI Details
- After 0.3pp downside vs headline consensus in German flash CPI was last seen in January 2025, looking at the historical CPI data highlights some notable base effects present last December.
- In all other recent years, the seasonality from Nov to Dec has been a marginal increase, flat or decrease in the index level. This was the case in 2024, and tentatively points towards today's CPI drop in the Y/Y measure being temporary.
- As we've projected following state-level data, core slowed materially, by 0.3pp to 2.4%, the lowest Y/Y reading since June 2021.
- That appears to have been driven by core goods, as services remained unchanged at 3.5% Y/Y in December. Analysts saw mixed developments on core goods ahead of the state-level data but the magnitude of the deceleration was most likely unexpected, and a key contributor to the overall headline downward surprise.
- Energy meanwhile also contributed downwardly to the change since November, coming in at -1.3% Y/Y (-0.1% Nov), the lowest since August.
- Food was also lower than previously, at 0.8% Y/Y (1.3% Nov).
EGBS: /STIR: Soft National German CPI Promotes Dovish Move
Bund and Euribor futures firm on the back of the German national CPI data, which was a touch softer than regional level data implied.
- ERZ6 through prior session highs, to test the December 8 high (the day whereby the market took comments from ECB’s Schnabel to be hawkish and priced more meaningful odds that the next move from the Bank would be a rate hike, not a cut). ECB-dated OIS last pricing near 20% odds of a rate cut come the end of the July meeting.
- Bunds to fresh session highs at 127.75, piercing the 20-day EMA (127.73). A clean break above would expose the Dec 30 high (127.86).
- German yields now ~2.5bp lower across the curve.
