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Brazil, Colombia Bonds Likely to Continue Underperformance As Elections Near

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Brazil and Colombia Flags in puzzle isolated on white background

Bonds in Brazil and Colombia are expected to continue to underperform due to the divisive elections, Bloomberg reported.

Both countries are expected to record lower bond yields after hiking interest rates in 2021. Five-year local bonds in both countries are among the worst-performing across the globe, behind is only Russia, which dropped due to pessimism over talks with the US.

Investors believe the yields could be hit by high political noise, as both countries are set to conduct their elections in a few months. The perceived country risk could also be seen in their five-year swap rates, which continue to move higher.

Brazil economic growth is expected at 0.75%, slower than any of its close emerging-market peers, while Colombia has been rated junk status by both Fitch Ratings and S&P due to the backtrack on tax hikes.

Investors will be watching out for the economic policy priorities of the top candidates in the coming months.

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