Colombia’s primaries have thrown the May presidential election wide open, reviving hopes for a new market-friendly administration and triggering a rebound in sovereign bonds.

Right-wing candidate Paloma Valencia won a surprisingly large share of the vote in the main opposition primary this weekend, putting her on equal footing with candidates from the left and a new hardline right who were previously expected to fight out the election between them.

The outcome sparked a jump in bonds, with notes due in 2036 rising from a six-month low, and eased the cost of insuring against a default over the next five years from the highest since May. A leap in crude oil prices also fueled the rebound in debt of oil producers, helping Colombia defy the slump seen across emerging markets amid the war in Iran.

“Having a center-right candidate is much more appealing in a general election,” said David Austerweil, emerging-markets deputy portfolio manager at VanEck in New York, who is overweight on Colombian debt. “Turnout was very high. I think the market underestimated potential votes for center-right.”

Valencia got 55% of the votes in the contest held by the center and conservative candidates, trouncing her eight rivals. Her campaign, focused on security and tax cuts, drew more than three million voters.

At the same time, turnout in the primary — 5.8 million people — surpassed most expectations, garnering more than 80% of total participation in the three inter-party consultations held on Sunday. The leftist contest only attracted 8%, as its most popular candidate, Senator Ivan Cepeda, was not allowed to participate.

The surprise

The result caught investors off guard. Recent polls had soured appetite for Colombian assets, as most gave Cepeda a big lead, followed by the conservative outsider Abelardo de la Espriella. Valencia, who had flown under the radar, is now seen as having higher odds of facing Cepeda in a second round. De La Espriella vowed to support her should that happen.

Valencia’s “result positions her as a credible contender for the presidency and potentially the main challenger to Cepeda in a runoff, particularly if she succeeds in consolidating support across the broader conservative camp,” said Thierry Larose, a portfolio Manager at Vontobel.

Despite Sunday’s surprise, investors remain cautious, warning of the challenges ahead. Valencia will now need to appeal to centrist voters to undermine support for Cepeda, making her choice for running mate a vital decision.

“Supporters of Valencia’s primary rivals may not necessarily swing behind her candidacy en masse,” Nicholas Watson, managing editor at risk consultancy firm Teneo, wrote in a note.

Moreover, the results of congressional elections which were also held on Sunday showed that the left is anything but weak. President Gustavo Petro’s coalition, Pacto Historico, secured more seats in the Senate, reasserting its position as the single party with the largest representation. No party or coalition has a majority.

The president’s popularity has also been picking up, though some investors note that polls need to be taken with a grain of salt, particularly after Sunday’s vote. No polls have been published since the primaries.

“It’s difficult to imagine Cepeda having more support than Petro in 2022, without the backing of centrist groups that were critical for Petro’s victory,” said Alejandro Arreaza, an economist at Barclays. “Now the question is whether Paloma can consolidate the votes she received.”

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—With assistance from Andrea Jaramillo.

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