The role of investor composition in sovereign bond pricing: evidence from an emerging market

This paper quantifies how demand and supply shocks transmit to yields in Colombia's sovereign bond market by estimating investor–level demand elasticities and translating them into equilibrium price effects. Using investor–security microdata and two complementary identification strategies, I recover elasticities for major investor groups within a structural demand-system framework. Pension funds and banks absorb a large share of marginal issuance and hold much of the outstanding stock, giving them substantial influence on yields despite their relatively elastic demand. Foreign investors, though absorbing less supply, still exert meaningful price effects. A 1% change in an investor group’s holdings moves yields by roughly 2–5 basis points, while a 1% increase in total debt raises yields by about 37–47 basis points. Applying the estimates to recent dynamics shows that foreign divestment since 2022 generated gradual upward pressure on yields and that absorption capacity has tightened as marginal absorption shifted toward less elastic domestic investors.