Post by Metodi Tzanov

Colombia’s local bonds just posted a 4.4% loss in the last month, the worst performance in the developing world. The country votes on May 31. Markets are nervous, and we think the reasons are clear.   Leftist Ivan Cepeda, from Gustavo Petro’s Historic Pact, leads first-round polling at 37.4%. But hardline independent Abelardo De la Espriella has closed fast, reaching 31.3% on strong May momentum. Three of the 4 main polling firms now see him winning the expected runoff, despite his first-round deficit.   Prediction market Polymarket is more decisive: De la Espriella at 72%, Cepeda at 28%. Uribista candidate Paloma Valencia sits at 14.8% and fading. Polls close at 4pm COT on May 31, with a solid preliminary result expected around 5pm.   The candidates’ economic visions don’t overlap. Cepeda would represent continuity of Petrismo: a larger state, expanded cash transfers, and soft fiscal consolidation. Our analysts flag a higher risk of fiscal drift in a country that has already suspended its fiscal rule, with debt service set to become increasingly burdensome from 2027.   De la Espriella wants to shrink the state sharply, cut subsidies, maximize fossil fuel output, and tighten security cooperation with the US. Our bond-market takeaway: a binary outcome between fiscal discipline and social shock. Firms including PPM America are heading into the vote with limited Colombian exposure; Vontobel has been shunning Colombian dollar bonds. JPMorgan Asset Management's head of EM debt called Colombia the place where 'the left is much more radical and could be more challenging.   This week, a court ruling resolved a separate institutional crisis: it suspended a rule that had given the Petro government an effective veto over central bank rate decisions. That problem is closed. The political one isn’t.   A runoff on June 21 is almost certain. The critical question is whether the fragmented right can unify around De la Espriella before then. Valencia’s centrist voters, especially those aligned with Bogotá’s Juan Oviedo, may not see De la Espriella, often tagged as far right, as a natural home.   Colombian voters are notoriously volatile. In 2022, Rodolfo Hernández displaced Federico Gutiérrez late in the campaign and upended every projection. We’d watch how Valencia’s 14.8% splits, and whether Bogotá, decisive for Petro’s 2022 win, stays in Cepeda’s column. #colombia #emergingmarkets #elections EmergingMarketWatch