The Central American country's bonds have been in trouble since Trump made the promise during his election campaign and the prominence of the issue during Trump's inaugural address had raised the stakes.

US investment bank JPMorgan has downgraded its rating on Panama bonds after US President Donald Trump stepped up his threat this week to "take back" the Panama Canal.

The Central American country's bonds have been in trouble since Trump made the promise during his election campaign, but JPMorgan analysts said his prominence during his inaugural address on Monday had raised the stakes.

The canal, once owned by the United States but handed over to Panama decades ago, gives ships a much shorter route between the Caribbean Sea and the Pacific Ocean.

While the two countries may end up resolving the issue, "the potential noise associated with the path that could take us there should cause markets to become increasingly sensitive to the major risks," the analysts warned.

Combined with “little clarity on the end result” for Trump, they cut Panama bonds from “overweight” to “market weight” – effectively a signal to exposed investors to cut their spending.

Others have also warned that Trump's threat could have serious consequences for Panama. Research firm Tellimer has highlighted that canal-related transfers are the country's main source of income, providing just over 13% of the government's general revenue.

Although hampered last year by drought that limited the number of ships able to pass through the 82-kilometer (51-mile) canal, they hit an all-time high of $2.54 billion in 2023, equivalent to 3.2% of the country's GDP.

JPMorgan said that "all things being equal" and with Panama's economy expected to grow nearly 5% this year, its rating should avoid that fate.

Although now that the channel is in Trump's crosshairs, they acknowledged that "not all things are equal."