Box 2. Development of Foreign Investors’ Trends in the Local Public Debt Market and the Role of Pension Funds as Stabilizing Agents in this Market during 2023

Foreign investors made significant sales of their holdings of local public debt securities during 2023.Specifically, they sold COP 9.1 t in peso-denominated TES and COP 2.4 t in UVR-denominated TES respectively.This represented a 11.7% decrease in their balance in pesos compared to what was seen at the end of December 2022. 1Nevertheless, foreign investors remain the second largest holders of local public debt securities 2 (Graph B2.1).They have been the second largest holders of these securities after pension and severance funds since 2016.They have maintained this position even in stressful events such as the covid-19 pandemic.According to some of the agents consulted, the sales by foreign investors were due to profit taking and the investment policies of some of these agents, but not to a greater perception of risk towards Colombia (Graph B2.2).In particular, they have highlighted the fact that the profit taking is related to the appreciation accumulated by Colombian securities in 2023.As for the appreciation of the peso vis-a-vis the US dollar so far this year, which increases the value of Colombian assets, this has led some investors who have a stable exposure strategy to sell securities.With respect to this second idea, when the change in the TES balance held by foreign investors expressed in dollars, which is presumably the currency in which most of these agents measure the exposure of their portfolio, is analyzed, this change was even found to be positive during 2023 (Graph B2.2).The perception of Colombia's sovereign risk, in turn, declined more than that of its regional peers did during the same period (see Section 4.2.1).When the flows are broken down by the maturity of the securities traded, it is clear that foreign agents registered net inflows in long term bonds 3 during 2023.These purchases partially offset their sales in short and medium-term securities and indicate that these agents maintain their appetite for the Colombian market.In addition, this trend could be related to the strong performance of longer-term securities during the year and to the fact that the high levels of interest rates on these securities allowed foreign investors to obtain profitability for a prolonged period of time.