A mixed month for US Treasuries

Between May 26 and June 24, the US Treasury yield curve moved in two directions, according to the report. Yields on maturities between two and five years rose by an average of 6 basis points, while the 20- and 30-year segments fell by an average of 16 basis points. The research team tied the move to a communiqué indicating that the US and Iran had reached a memorandum of agreement during the final week of the period, aimed at extending the current ceasefire. Oil prices swung on mixed headlines through the period, and markets also took in inflation data that landed in line with the analyst consensus. In the US labor market, the report noted a stable unemployment rate alongside a significant increase in job openings.

Against that backdrop, the Federal Open Market Committee voted unanimously to hold the federal funds rate in the 3.50% to 3.75% range, a decision the bank flagged as the first without dissent in the past year and consistent with the Federal Reserve‘s prudent stance. The accompanying projections revised the 2026 growth outlook lower and the 2028 outlook higher; the unemployment forecast was cut only for 2026, while the inflation view was revised upward.

Cross-border demand for US debt strengthened. The US Treasury reported that foreign investors made net purchases of long-term bonds of $50.5 billion USD in April, the highest figure since November 2025. Private investors accounted for $30.8 billion USD of net buying in long-term Treasuries, a moderation from the pace seen in March. By geography, the net purchases concentrated in the United Kingdom and Japan, at $26 billion USD and $14.7 billion USD respectively, while investors domiciled in Canada were the largest net sellers as the country’s foreign reserves fell by $42.3 billion USD, followed by Norway and Korea.

Across emerging markets, 10-year sovereign yields moved unevenly over the month as investors responded to country-specific factors. Brazil led the increases at 46 basis points, followed by Indonesia at 43, Vietnam at 13 and Romania at 6, while Chile, Peru, India, Poland and the Czech Republic recorded declines. The report highlighted a 134-basis-point drop in Colombia, which it attributed to the market’s reaction to the first- and second-round presidential results that left Abelardo de la Espriella as president-elect for the 2026–2030 term.

The TES curve gains across the board

At home, the fixed-rate TES curve — Colombia’s peso-denominated treasury bonds — appreciated along its entire structure. Between May 22 and June 23 the curve gained an average of 188 basis points as yields fell across every segment: the short end (one to four years) by 172 basis points, the middle (five to nine years) by 218, and the long end (more than 10 years) by 169. The report attributed the move on the external side to the evolution of the Middle East conflict and the expectation of de-escalation agreements, and to the Fed’s decision to hold rates, which reinforced a cautious tone. Locally, it said the rally responded mainly to the first-round presidential result and held through the following three weeks, producing a stronger appetite for local debt.

An optimistic fiscal frame the bank questions

The report said the fiscal deficit would narrow in 2026 according to the figures in the Marco Fiscal de Mediano Plazo (Medium-Term Fiscal Framework). After its most recent update, the bank wrote, the National Government presented an optimistic outlook that does not fully incorporate the fiscal fragilities for 2026. The framework projects a deficit of 5.3% of GDP and a primary deficit improving to 2.1% of GDP. The research team countered that, while debt-management operations have improved the structure of debt service, they have been insufficient to halt the structural growth of interest payments, which would reach 3.9% of GDP in 2027 and remain above 4% in the following years. It added that debt reduction could be constrained by new financing needs in a low-liquidity environment, and that the framework itself acknowledges the need for an additional revenue adjustment of close to 1.6% of GDP to stabilize the debt.

The bank’s own outlook is more cautious than the government’s headline number. In its factor-by-factor view of the coming month, the research team described the fiscal panorama as a continuing source of concern and said the projected 2026 adjustment looks demanding, with revenue and spending pressures pointing to a deficit closer to 6.5% of GDP. Colombia lost a notch of its sovereign credit rating earlier this year, when S&P Global Ratings cut the country to BB- on fiscal concerns.

On budget execution, the report said the Presupuesto General de la Nación (General Budget of the Nation) had reached 46.7% of accumulated appropriations through May. Commitments under the budget totaled $259.8 trillion COP year-to-date, 5.5 percentage points above the same period of 2025. By component, investment led with 58.1% execution, followed by debt service at 50.0% and operating expenses at 43.1%. In terms of effective execution, accrued obligations through May reached $187.2 trillion COP, or 33.7% of appropriations, while payments stood at $185.7 trillion COP, or 33.4%.

Pension funds and banks lead TES buying

In May, pension fund managers (AFPs) and commercial banks led the month’s TES purchases, the report said. The total stock reached $763.6 trillion COP, an annual increase of 18.7% and a 1.9% gain over April. In the secondary market, net purchases came to $14.1 trillion COP, driven mainly by AFPs at $7.5 trillion COP, commercial banks at $5.7 trillion COP, insurance companies at $1.6 trillion COP and the Banco de la República at $1.3 trillion COP. Foreign funds were the largest net sellers, with a balance of -$4.7 trillion COP, a result the report attributed to the full cancellation during the month of a total return swap (TRS).

A negative tilt for the month ahead

Looking to the next month, the research team rated the balance of factors for the fixed-rate TES curve as negative overall, with the most negative readings at the short end. It pointed to a Federal Reserve holding a restrictive stance amid persistent inflation and a resilient labor market, and to external uncertainty tied to the Middle East and energy prices. On the domestic side, it noted that the economy grew 2.5% year-on-year in the first four months — less dynamic than initially expected after a retreat in primary activities — while public spending and private consumption should continue to support activity through the rest of the year.

The bank flagged inflation and monetary policy as the clearest pressures on local bonds. Annual inflation has stalled in its convergence toward the Banco de la República’s 2.0%–4.0% tolerance range and has begun to accelerate on high indexation and economic momentum, with gasoline-price adjustments, costlier fertilizers and an El Niño event capable of adding further pressure and putting inflation near 6.4% at year-end. With expectations rising, the policy rate stands at 11.25% and, the report said, could reach 12.00% at the June meeting and approach 12.75% in the second half of 2026 as the central bank works to anchor expectations. Set against those headwinds, the bank noted that Colombia’s sovereign risk premium fell over the month to below the Latin American average following the end of the electoral process, even as questions about the sustainability of public finances remain.

The report was prepared by the Directorate of Economic, Sector and Market Research of Grupo Cibest, led by Laura Clavijo, drawing on data from the Federal Reserve, the US Treasury, the Ministry of Finance and Public Credit (Ministerio de Hacienda y Crédito Público), the Banco de la República, LSEG Workspace and JP Morgan.

The appreciation of the Colombian peso occurred despite the concurrent decline in international oil prices and relative stability of the US dollar (USD) globally.

A primary factor contributing to the peso’s strength was the monetization of resources executed by the Ministry of Finance and Public Credit. According to data cited from Bloomberg L.P., the government monetized approximately $1.7 billion USD in September, with the capital originating from Total Return Swap (TRS) operations. The majority of this monetization reportedly occurred during the week of September 22.

The foreign exchange inflows correlated with elevated trading activity. Several sessions recorded high transaction volumes. On September 23, traded volume reached $2.3 billion USD, a figure only surpassed by the volume recorded on March 3, 2022. Throughout the month, the USDCOP exchange rate fluctuated between $3,830 COP and $4,047 COP, concluding the month at $3,917 COP, a decrease of $98.92 COP from the August closing level. Analysis of the market indicated that the Relative Strength Index (RSI) remained in oversold territory during multiple sessions. Data on the USDCOP performance was sourced from SET-ICAP, a local trading platform.

Monetary policy adjustments in the United States and the stability of rates in Colombia defined the global and domestic interest rate landscape for the month.

The  USFederal Reserve System (Fed) resumed its monetary easing strategy at the September 17 meeting of the Federal Open Market Committee (FOMC). The FOMC reduced the federal funds rate range by 25 basis points (bp), setting the new target at 4.00%-4.25%. The decision marked the first rate cut since December 2024 and was attributed mainly to evidence of deceleration in the labor market. Individual projections released via the Fed’s dot plot indicated expectations for two additional rate cuts before the close of 2025, followed by one more in 2026, which would situate the federal funds rate range between 3.25% and 3.50% next year. Fed Chair Jerome Powell adopted a cautious stance regarding the prospect of future monetary easing.

In contrast, the Central Bank of Colombia (Banco de la República) maintained the repo rate at 9.25%. Current market consensus does not project additional rate cuts for the remainder of the year.

Analysts forecast the USDCOP exchange rate to trade within a range of $3,850 COP and $4,050 COP throughout October. This projection is reportedly based on anticipated continued global weakness of the US dollar, the cautious policy posture of the Banco de la República, and continued adjustments in capital flow dynamics.

Colombian Peso. Photo credit: Mano Chandra Dhas.

Overnight we had the latest real sector data from Departamento Administrativo Nacional de Estadística – DANE Colombia which read well.

The manufacturing production numbers, despite the tidy GDP growth, have been spotty, but in May there was a 3% increase (above 2% estimates) in real terms, with sales (2.6%) & employment (0.3%) also showing improvement. However, despite 25 of the 39 sectors being in positive territory, it’s a little early to claim victory – only last month, there was a 3.3% overall decline. For the record, the main drivers were food, clothing, and chemical manufacture.

As expected in Colombia’s consumer driven economy, there was another big retail sales (13.2%) increase driven by vehicles (+29.8%), information/technology (+56.6%), & food (+6%). This all reads well, except for the fact that scanning through the categories, so much is imported. With exports still in the doldrums, expect ongoing deficit problems.

Interestingly, the main economic press concentrated on industrial production which dropped 0.2% – no mention of the other data points – any wonder they get criticized by the government for misrepresenting the economy !

Whilst the diplomatic & trade dispute rumbles on with no fresh news, Donald Trump & Gustavo Petro find themselves continuing as strange bedfellows with Petro again this weekend, aiming at Banco de la República – Colombia and what he perceives as their stubbornness over rates, which remain at 9.25%. Trump has the same attitude toward the FOMC. Whilst 2025 has seen slower-than-expected growth in Colombia, the reality is that overnight rates should have come down far more in 2024, and allegations of politics at play are hard to ignore. This month we should see a reduction to 9%, from there hopefully we’ll see rates at or below 8.5% by the end of the year.

Over the past few weeks, there have been a growing number of headlines related to the growth in agriculture, record revenues, exports, etc., which was one of Petro’s stated aims when he came to office. Why is there so much surprise? Colombia has arguably the best growing climate in the world, and it is also a country where only 4 million of an estimated 32 million farmable hectares are in use, so there is huge upside potential. The fly in the ointment, of course, are the mega-rich robber barons who prefer to use their farms for their purebred horses and infinity pools, as opposed to contributing to the future of the country.

Those are the main points this Wednesday, but where we haven’t heard anything significant for the past week is pension reform, tax reform, referendums, decrees, or national assemblies. There has, of course, been plenty of hot air amongst the runners and riders in the 2026 presidential derby – but there is no need to give them airtime.

Have a great rest of the week.

Roops.

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Departamento Administrativo Nacional de Estadística – DANE Colombia office in Cúcuta. Photo credit: EEIM/Wikipedia.

Unemployment data from the National Administrative Department of Statistics (DANE) for July was once again favorable, with both the urban (9.8%) and national (9.6%) rates down (from 11.3% and 11.0%, respectively) from a year ago. Both readings (apples vs. apples) saw their lowest July reading since 2015. In nominal terms, on a national basis, there are 22.9 million persons working — up 3.8% (~847,000) from a year ago. There is still plenty of work to do on gender, with women seeing an occupancy level of 47.1% vs. 11.9% unemployment. This compares with 71.0% and 7.9%, respectively, for men.

Banco de la República sat down yesterday, but as we know it was a “coffee and biscuits” meeting with no decision on rate changes or subsequent press conference. All eyes will be on August consumer price index (CPI) next week and then waiting to see the size of the (expected) rate cut from Colombia’s central bank in September.

In terms of politics and reforms, it has been a week of jousting as opposed to hostilities and, as ever, you have to wade through the vested interests of both the press and politicians. The National Business Association of Colombia (ANDI) last week was asking to be part of a broad-based dialogue about the country’s future but, at least in terms of the lLabour reform, the government is suggesting that after 12 months of being criticized by the private sector, they will go it alone. It’s a shame when there isn’t dialogue but the ANDI and private sector are equally to blame.

The transport strike on Monday, was a damp squib and with the government already stating that there is no intention to raise diesel prices — or to give taxi drivers preferential fuel rates — the subject looks closed. Prices for the next few months will continue to rise as the government continues to attack the fuel subsidy hole left by their predecessors.

Year to date, the government has now imported 309,000 tons of LNG in order to combat El Niño and falling reservoir levels. This is 60% above the 2022 total but necessary until the country can reverse years of declining production. Some elements are trying to pin this shortage on Gustavo Petro (nothing new here), but the shortfall in gas production has been years in the making.

Gonzalo Perez will retire from CEO of Grupo SURA after three years. The search is now on for his replacement (in reality, it will be from within the group).

On the equity markets, there has been little activity — and Asobolsa won’t change that. The peso was quiet around the 4,100 peso level to the dollar while awaiting the next FOMC meeting in the United States.