Before the polls closed, the market had already delivered its own verdict. On Monday, June 2, the Colombian dollar-denominated sovereign yield curve narrowed by an average of 33 basis points over the week, the peso appreciated, and risk appetite surged at a pace more typical of a runoff election than a anticipated for June 21. It was not a reaction: it was positioning. 

The results on May 31 came as a surprise. Abelardo de la Espriella (a lawyer , an outsideraligned with Milei and Bukele) won 43.7% against 40.9% for Iván Cepeda, the Pacto Histórico candidate. With Paloma Valencia eliminated with just 6.9%, the election became a two-horse race, and the market—allergic to ambiguity—immediately chose its preferred scenario. The dynamics of the spreads revealed something more interesting than the direction: their structure. Ecopetrol narrowed by nearly 48 bps over the week, almost 15 more than the sovereign bond—the quasi-sovereign bond was unwinding part of the political premium accumulated during the Petro administration. Bank stocks showed a different pattern: Bancolombia and Davivienda joined the rally, but Grupo de Bogotá, the only Colombian investment-grade bank, barely moved. Part of the explanation is that it entered the event with a considerably lower political premium. The peso completed the picture: the market not only bought bonds but also unwound currency hedges. 

The contrast with Peru is the most telling. In the first round on April 12, among a field of 35 candidates, Fujimori barely made a dent in the Peruvian market, garnering just 17%. The June 7 election between two right-wing candidates does not seem to be worrying the market either. But the reason is not that Peru’s fundamentals are robust; rather, the market stopped paying attention to that country’s politics long ago. Seven presidents in less than a decade, impeachments, and recurring institutional crises: Peru has normalized instability to the point where its assets and its political cycle operate in different spheres. The Peruvian bond market prices in copper, Fed rates, and the balance of payments. Elections are just background noise. That decoupling does not exist in Colombia or in most of Latin America, where politics remains a variable in pricing . The paradox lies in the numbers: despite its institutional chaos, Peru trades with spreads 118 basis points lower than Colombia. The market does not punish Peruvian instability because it has learned to ignore it. But the Peruvian case raises a more uncomfortable question than that of the spread: when a market stops reacting to politics not because it trusts institutions, but because it has learned that chaos is the normal state, is it pricing risk or simply ignoring it? 

Tax reform in Colombia is inevitable; fiscal space is minimal, and June 21 could undo everything that has been achieved in a week. The market did not buy into a fiscal solution. It bought into a lower probability that Petro’s economic experiment would be scaled up. What happens next will reveal whether the market also correctly assessed the risk. 

Cristián Zañartu

Latin American Fixed Income Trader – Cash Desk