Colombia's peso just hit one of its strongest levels in five years, which has been a problem for the finance ministry as it tries to pay off a roughly $9 billion swap that comes due this year. The government's response has been to load up on dollars in the spot market, and the buying is starting to push the currency in the other direction.
Colombia's finance ministry has been adding to its dollar holdings in the spot market for weeks, while the peso sat near multi-year highs and made dollars cheap to buy.
Behind the buying is a Total Return Swap that the government took out last year, worth about $9.3 billion in Swiss francs and structured as a one-year loan that the clock is now running out on.
To clear it, Colombia is also planning to issue around $4.6 billion in global bonds in 2026, with the proceeds earmarked for the swap unwind.
Heavy dollar buying works like a weight on one side of a seesaw, pushing the peso the other way as supply meets new demand from the Treasury.
USD/COP climbed to about 3,740 on Wednesday, up 0.40% from the prior session and reversing some of the peso's recent rally to multi-year highs.
The Treasury said earlier this year it would not sell dollars into the market or launch new swap operations, with Public Credit Director Javier Cuellar saying Colombia would instead run a direct bond buyback using existing cash.
Colombia saved roughly 21 trillion pesos - about $5.5 billion - in 2025 through similar swap and buyback moves, and the 2026 plan is meant to lock in more of those savings while clearing the swap off the books.
Colombia's central bank has been holding its benchmark rate at 11.25%, one of the highest in Latin America, after Banco Republica kept rates steady at its April 30 meeting.
That high carry has been part of what kept the peso strong earlier this year, since global investors have been able to earn an outsized return holding peso-denominated debt versus most other emerging markets.
The dollar buying is also landing in an election year, which has added political headlines into the mix and made the peso more sensitive to news flow than usual.
Two things matter from here, with the first being how much the peso gives back as the government keeps buying dollars in size, and the second being the timing of the bond issuance Colombia needs to fund the swap payoff.
Investors watching Colombian assets have spent the year tracking political risk and election noise, but the mechanics of how the country pays off this swap could move the peso more than any of it in the near term.
The finance ministry's pitch has been that this is a planned exercise tied to a specific liability, not a panic move, and the peso reaction over the next few weeks will tell investors whether the market buys that framing or whether further intervention is needed.
