Sovereign risk manager of the year: The Ministry of Finance and Public Credit of the Republic of Colombia

Risk Awards 2026: An audacious total return swap helped the national treasury reduce its debt stock and servicing costs while reducing dependence on dollar financing

Javier Cuéllar, director of public credit and national treasury

When Javier Cuéllar was appointed as director of public credit and national treasury at the Colombian Ministry of Finance in 2025, he set himself a clear agenda: cut the nation’s rising sovereign debt levels; diversify funding away from the US dollar; and attempt to rebuild market confidence, which had been shaken by a government pledge in late 2024 to partially decentralise fiscal control to local authorities.

What followed was a whirlwind of activity. In the next six months, Cuéllar’s team would complete a remarkable 10 liability management operations, including playing hardball with a syndicate of global banks to pull off an audacious total return swap worth more than $9bn.

The results were striking. Before April, debt as a percentage of GDP was projected to hit 64% by 2027. Now, it could be cut to just 55% by next year. The cost of servicing this debt was concerning too, estimated to hit 5% in 2026. It’s now closer to 3%. Investors have responded, with yields on Colombian 10-year sovereign bonds tightening by more than 150 basis points during the period. One media outlet styled Cuéllar as the hard-driving cowboy of sovereign debt markets, but he prefers to describe himself in calmer terms, as a chess player.

$9.3 billion

Value of Colombia’s ambitious total return swap

“When you have a strategy, you are able to sacrifice a couple of pawns – that’s not a cowboy or a gambler,” says Cuéllar. “We were losing the game at the beginning of the year; we had lost a lot of pieces… but that’s different from having lost the game – we are now not losing the game, we are gaining.”

The immediate problem for the national treasury team was the shortage of hard currency liquidity, which “was at its lowest level ever” according to Cuéllar. To address this, the team entered into a cross-currency swap of Colombian pesos for Swiss francs, and used the proceeds to begin repurchasing dollar-denominated debt at the start of August.

The treasury acquired around $1.9 billion in bonds, with a nominal face value of almost $3 billion due to the weakness of the sovereign’s debt at that time. Consequently, the transaction represented a significant reduction in the sovereign debt stock. Thanks to a supportive move in the underlying exchange rates, the finance ministry was also able to close out the cross-currency swap with an FX gain of $85 million in October.

Ready to walk away

As it turned out, this was just the warm-up act. The next step was a highly ambitious total return swap (TRS), a complex package worth the equivalent of $9.3bn, where the Colombian finance ministry agreed to pay the performance of the Swiss franc and receive the blended performance of its own dollar and Colombian peso liabilities. The TRS was to be partly collateralised with a mix of local and foreign currency bonds issued by the Colombian government, and US Treasuries.

Crucially, Cuéllar wanted the banks that entered into the TRS to retain their resulting counterparty credit risk exposure to Colombia. The national treasury was keen to avoid a situation where the banks were offloading Colombian sovereign risk into the market at the same time the finance ministry was attempting to issue new bonds. But persuading the banks to hold a large slice of counterparty exposure to a sub-investment-grade issuer was a big ask, to put it mildly.

Total return swaps can be a weapon of mass destruction when used as an emergency loan, but a game-changer when used wisely

Javier Cuéllar, Colombian Ministry of Finance

“That was really difficult to negotiate, I almost stood up from the table three times – the bankers even named it ‘Black Friday’,” Cuéllar jokes.

The Ministry of Finance still held one high-value piece – the prize of bookrunner status on the giant liability management exercise that would follow if the TRS could be executed. It was enough to seal the deal, with six banks agreeing to the swap and to the national treasury’s demand that the counterparty risk would not be sold on.

Cuéllar believes the willingness to walk away in order to secure a good deal is what distinguishes the Colombia TRS from transactions by other sovereigns that have not necessarily worked in their favour. Angola signed a $1 billion synthetic financing deal in December 2024, but less than six months later found itself facing a $200 million margin call that prompted concern from the International Monetary Fund.

“Total return swaps can be a weapon of mass destruction when used as an emergency loan, but a game-changer when used wisely,” says Cuéllar.

Currency strategy

The national treasury’s choice of Swiss francs as the funding currency was also intended to manage the risks of the deal. Up until August, almost all external debt was denominated in US dollars. Colombia’s balance of payments depends heavily on hydrocarbons exports, and the peso therefore tends to sell off heavily against the dollar each time energy prices decline.

“Any time that we have an external shock, like the one in 2014 for oil prices and the one for the [Covid] pandemic, the depreciation of the Colombian peso is almost 30% on average,” says Cuéllar.

Due to the very high share of dollar-denominated debt, that decline in the peso triggers sharp rises in Colombia’s debt stock and servicing costs in peso terms.

We were able to convert floating rates in US dollars to about 1.3% fixed for 12 or 15 years into the future

Javier Cuéllar

However, when external shocks drive investors towards the dollar as a safe haven, that also causes it to strengthen against many other currencies, including the euro. Since Switzerland is closely integrated into the wider European economy, the Swiss franc has tended to correlate closely with the euro, since Switzerland ended its currency peg in 2015. But funding rates in francs are around 200bp lower than in euros. The finance ministry therefore favoured the Swiss franc as a cheaper proxy for funding in euros and reducing the vulnerability of debt ratios to external shocks.

“We were committed to floating rates in US dollars at an average of 4% plus 200 basis points – that is close to 6% floating rate – and we were able to convert them to about 1.3% fixed for 12 or 15 years into the future,” says Cuéllar.

That’s a dramatic saving in debt service costs, even if Swiss franc appreciation were to eat into some of it. And the national treasury is also assuming mean reversion – the franc is currently strong against the dollar by historical standards, so a depreciation from here is seen as more likely over the life of the TRS. This would further reduce the peso-equivalent cost of financing in Swiss francs compared with US dollars.

In the past, Colombia has issued small proportions of debt in yen – another very low-yielding currency – but the Ministry of Finance is not looking to re-enter that market at this time. Cuéllar notes the currency is undervalued relative to the dollar based on historical levels, so mean reversion is likely to work against Colombia in this instance.

Strong demand

Once the TRS was executed, Colombia could carry out the next stage of the process – a large tender to retire existing debt (some of it issued at high yields during the Covid crisis) and partly replace it with new issuance. Since they had skin in the game from the TRS exposure, the six bookrunners – BBVA, Banco Santander, BNP Paribas, Citigroup, Goldman Sachs and JP Morgan – “became ambassadors” for the sovereign, Cuéllar explains, with a strong incentive to make a success of this stage.

The success we had in the Eurobond issuance came not only from a very strong narrative, but also from a very strong communication plan

Javier Cuéllar

In total, $4.6bn in cash was used to buy back US dollar global bonds which had a nominal face value of $5.4bn, with the debt then cancelled. The overall transaction therefore cut external debt by nearly $1.8bn in total.

In terms of the new issuance, this too formed part of the strategy of reducing dollar dependence, with Colombia returning to the euro-denominated market for the first time in a decade. The three European banks were crucial in helping to broaden the investor base for this deal, with almost half the funds coming from countries where investors have not typically bought Colombian issuance.

“The success we had in the Eurobond issuance came not only from a very strong narrative, but also from a very strong communication plan,” says Cuéllar.

Colombia received the equivalent of almost $30 billion in orders, allowing the largest ever euro-denominated issuance from Latin America, at €4.1 billion across tranches maturing in 2028, 2032 and 2036. The average yield for these new issues was 4.7%, a saving of 300bp compared with the dollar debt that was bought back. After the deal, the total share of euro-denominated debt in Colombia’s issuance was 4%, and Cuéllar is aiming to increase this to 6–8% going forward. Further liability management exercises have followed, and by the end of October, the national treasury had repurchased $41 billion in total, delivering $31 billion in new issuance.

Closing the gap

Cuéllar says he’s “not done” yet, planning to maintain liability management operations at a similar pace into next year. It’s clear he has a close eye on a neighbouring country that has lower credit ratings, higher debt-to-GDP levels, and yet tighter sovereign yields – Brazil. He thinks this situation is an inadequate reflection of Colombia’s status as a sovereign issuer.

“[During] the big Latin America sovereign debt crisis in the 1980s, 80% of the countries defaulted on payments,” says Cuéllar. Since that time, Brazil has defaulted on or restructured sovereign bonds on six occasions, he points out: “Colombia, zero.”

“Colombia has the strongest character to be considered in a credit risk assessment,” he argues. “Even in crisis… Colombia has never considered to default on payments.”

In practice, the national treasury is well aware of one reason why Brazilian bonds trade inside Colombia’s. Thanks to a vibrant domestic investor base, only 17% of Brazilian sovereign debt is held by foreign investors. By contrast, foreign investors held 41% of Colombian government debt in 2022, leaving the country vulnerable to changes in international sentiment. This year’s transactions have reduced that ratio below 30%, and Cuéllar is aiming for 25% before the next elections in August 2026 – a moment of uncertainty which could lead to fresh turbulence in the bond market. The sovereign currently retains one investment-grade rating of Baa3 from Moody’s, alongside ratings below investment grade from S&P and Fitch. Cuéllar wants the government’s bonds to trade closer to other investment grade sovereigns like Mexico.

So far, the plan is working. The spread between Colombian and Brazilian 10-year sovereign yields has narrowed from more than 163bp in April to less than 62bp by October. But at the time of writing, the Colombian bond market was facing fresh turbulence, after a diplomatic dispute with the US government, which threatened to cancel some of its bilateral financing to Colombia. The national treasury team will still need to play a few more smart moves before they can declare checkmate in their battle to stabilise sovereign risk.