J.P. Morgan to boost Colombia bond weighting, peso up most in 6 months

BOGOTA, March 19 Wed Mar 19, 2014 1:51pm EDT

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BOGOTA, March 19 (Reuters) - Colombia's peso staged its strongest rally in six months after investment bank J.P. Morgan announced on Wednesday it will boost the weighting of the country's peso-denominated debt in two closely followed emerging market bond indexes.

In a note circulated to investors, J.P. Morgan said it will introduce five new Colombian Treasury bonds, known as TES, in its GBI-EM Global Diversified and GBI-EM Global indexes.

The new instruments - maturing in 2016, 2018, 2022, 2024 and 2028 - will be included in a phased approach over five month-end periods, starting on May 30 and ending on Sept. 30, it said.

Generally, an increased weighting of a country in major indexes leads to more investment in that nation's securities since investment fund managers are often judged against the benchmarks.

"COP (the Colombian peso) and TES bonds staged a huge rally after (the J.P. Morgan) announcement," Citibank said in a note. "The weight increase should generate very significant inflows into TES bonds. "

Colombia's peso strengthened 1.17 percent on Wednesday to 2007 to the dollar while public debt appreciated across the entire maturity curve. It was the peso's strongest appreciation since Sept. 19 last year.

In announcing the move to boost Colombia's weighting in the indexes, J.P. Morgan cited "improved transparency and accessibility for international investors in the local TES market."

As a result, the bank said Colombia's participation in J.P. Morgan's GBI-EM Global Diversified index will rise to 8 percent up from 3.2 percent previously and in the GBI-EM Global, it will increase to 5.6 percent from 1.8 percent

On March 3, the director of public credit, Michel Janna, told Reuters in an interview that the country was preparing reforms to boost sales of its debt to foreign investors.

Janna was referring to the need to make an even deeper cut to the tax foreigners pay on earnings from debt investments even after it was slashed to 14 percent from the start of 2013, down from 33 percent previously.

That cut raised the proportion of Colombia's debt in foreign hands to around 7 percent up from 2 percent in 2012, still a comparatively low figure for the region, Janna said. He added foreign ownership of Mexican and Peruvian debt is between 40 and 50 percent.

Janna considers 15 to 20 percent a desirable level of foreign ownership of the country's public debt.

Colombia's increased weighting may come at the expense of the that of Turkey, Russia, Thailand, Indonesia and Hungary, the announcement from the bank warned.

The TES bonds that will be introduced in the bank's indexes expire on June 2016, November 2018, May 2022, July 2024 and April 2028. (Writing by Peter Murphy Editing by W Simon)

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