Brewing Value: Panama and Colombia's Undervalued Bonds
Emerging markets have had a strong start to the year - the best start since 2019 - driven by easing inflation and expectations that major central banks may soon loosen monetary policy. As the end of the first quarter approaches, Panama and Colombia have emerged as standout performers in fixed-income markets.
Coincidentally, these two nations share deep historical ties, with Panama separating from Colombia in 1903. Although neighbours, the dense Darién Gap jungle prevents direct road access, requiring air or sea travel.
Panama’s 2060 bonds have gained over 9% this year. Central to Panama’s improving outlook is the potential reopening of the Cobre Panama mine, previously operated by First Quantum Minerals Ltd. Closed since late 2023 due to environmental and political issues, the mine previously contributed approximately 5% of Panama’s GDP and 1.5% of global copper output. Its reopening could significantly enhance employment, exports, and overall economic growth.
First Quantum is actively engaging with local communities to build support for restarting operations. Recent surveys suggest strong public backing, but hurdles remain, including political approval for open-pit mining, resolving environmental issues, and ongoing arbitration. President José Raúl Mulino remains cautious, prioritising broader domestic reforms.
Colombia’s 2061 bonds have risen over 6%, buoyed by strong global commodity prices, improving fiscal conditions, and successful inflation control. Investor confidence is bolstered by policy reforms, fiscal discipline, and growing optimism towards Latin America generally.
Both Panama and Colombia began 2025 with undervalued debt. Panama’s 2060 bonds currently trade around 276 basis points over US treasuries, with Colombia’s 2061 slightly wider at 299 basis points. Although split-rated (some agencies rate the bonds below investment grade), each retains at least one investment-grade rating, offering attractive spreads that more than compensate for global uncertainties and tariff risks. Their trade deficits with the U.S. might also shield them somewhat from global trade tensions.
Our portfolios remain positively positioned in emerging market debt, reflecting moderating inflation, expectations of interest rate cuts, and sustained demand for yield. However, we continue to closely monitor inflation trends, monetary policy developments, and geopolitical dynamics. Panama and Colombia represent key holdings in our broader fixed income portfolios, with the idiosyncratic undervaluations making them attractive holdings.
Interestingly, Panama and Colombia also share another global export—high-quality coffee. Whether enjoying a rich Colombian blend or a premium Panamanian Geisha, investors might see these two emerging markets as offering a similarly compelling brew of value and growth potential. As you savour your next cup, you might consider that, much like a fine coffee, the most promising opportunities often arise from a blend of unique flavours and favourable conditions.
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