Colombia Bonds Get Bank of America Overweight Call on 3.1% Primary Deficit
COLOMBIA · MARKETS
Key Facts
- —What happened Bank of America raised Colombia’s external sovereign debt to overweight from marketweight, Valora Analitik reported on 25 September.
- —The reason It sees the new government’s fiscal adjustment as sustained and structural, built mainly on spending cuts.
- —The numbers BofA now sees the primary deficit at 3.1% of GDP in 2026, 2.5% in 2027 and 1.5% in 2028.
- —The valuation Colombian bonds trade like BB- credits, 1.7 notches below an average rating of BB+ to BB, BofA says.
- —The catch The call rests on execution, and El Niño, wage rises and August quake costs could get in the way.
Colombia bonds have won a vote of confidence from Bank of America, which likes the new government’s deficit plan.
Colombia bonds sold abroad in foreign currency have a new backer. Bank of America has raised its call on them to overweight from marketweight.
Valora Analitik reported the change on Friday 25 September 2026. It covers Colombia’s external sovereign debt.
An overweight call means the bank advises clients to hold more of the bonds than a benchmark index does.
The reason is fiscal. BofA says the new administration of President Abelardo de la Espriella is committed to an adjustment it sees as sustained and structural.
What Bank of America Changed
The bank lowered its forecasts for the central government’s primary deficit, the gap before interest payments. It now sees 3.1% of GDP in 2026, 2.5% in 2027 and 1.5% in 2028.
It also expects the overall deficit, including interest, to fall step by step to 6% of GDP by 2028.
The key point for BofA is how the gap will be closed. Past reforms leaned almost entirely on higher taxes, the bank noted.
Why Colombia Bonds Look Cheap to BofA
The planned rescue bill, the Ley de Rescate, envisages an effort of 4.7 points of GDP over four years, BofA says. About 70% comes from spending cuts and 30% from revenue measures, according to BofA.
Adjustments driven by spending cuts tend to hurt growth far less than tax rises, the bank argued. BofA sizes this year’s budget-cut decree at 0.7% to 1.1% of GDP, mostly in capital spending.
BofA called the initial target conservative, leaving room for positive surprises. It says the bonds trade at a discount equal to 1.7 rating notches.
In other words, they are priced like BB- debt, against an average rating of BB+ to BB.
If the plan stays on track, the bank expects rating agencies to keep Colombia’s ratings stable. It sees that as a clear entry point for investors.
A New Way of Borrowing
The report also highlights a change in how the government funds itself. Colombia is returning to its historical mix and relying less on the local market.
External funding rises back to about a third of the total, BofA noted.
That should ease pressure on domestic interest rates, the bank said. Multilateral lenders such as the World Bank, the Inter-American Development Bank and CAF would play a bigger role.
BofA also mentioned a possible contingent programme with the International Monetary Fund. Multilateral and bilateral lenders offer longer maturities at lower cost, it noted.
The government is dropping what BofA called purely accounting operations used before, such as total return swaps. It is instead swapping short-term TCO notes due in 2026 and 2027 for debt due in 2027 and 2028.
How Colombia Got Here
The upgrade follows a difficult year for the public accounts. Colombia triggered the escape clause of its fiscal rule in June 2025, suspending its targets for 2025 to 2027.
The central government’s primary deficit reached 3.5% of GDP in 2025, up from 2.4% in 2024, the fiscal watchdog CARF said.
On 28 August, Finance Minister Miguel Gómez Martínez warned bankers that urgent action was needed to avoid an abyss. He set out a 21.9 trillion peso (about US$6.6 billion) spending cut for 2026.
The official 2026 target for the primary deficit is 3.3% of GDP. BofA’s forecast of 3.1% is slightly better than the government’s own goal.
Not everyone is as upbeat. On 4 September the CARF estimated the 2026 primary deficit at 3.9% of GDP, above both the official goal and BofA’s figure.
On 11 September the CARF warned that the overall deficit could come close to 10% of GDP in 2027, Portafolio reported.
Fitch rates Colombia BB with a stable outlook after a downgrade in December 2025. On 9 September it warned that a failure to consolidate could put new pressure on the rating.
The rescue bill has been announced but not yet filed in Congress. Gómez Martínez said on 14 September that the government would present it in October.
What the Markets Already Show
BofA says the shift in expectations is already visible. Davivienda’s manufacturing PMI rose to 54.7 in August, and business confidence in the survey hit a seven-year high.
BofA also says yields on peso government bonds due in 2030 have fallen more than 300 basis points since May 2026. Those bonds are known as TES.
Risks to the Call
The bank also noted headwinds, though it says confidence is holding despite them. The earthquake of 10 August 2026 will bring moderate reconstruction costs that weigh on the 2026 accounts temporarily.
Inflation should ease gradually towards 2028, BofA expects. But El Niño could push up food and energy prices, and past minimum-wage rises still feed through.
Why It Matters
For investors in Colombia, a major bank calling the dollar debt cheap can lower the state’s costs abroad if others follow.
Local loan rates track peso TES yields and the central bank’s policy rate more closely, so the effect at home is indirect.
For people earning or spending pesos, a stronger fiscal story can support the currency over time. For now global dollar strength dominates.
The official rate rose to 3,329.61 pesos per US dollar on Friday, from 3,151.73 a week earlier.
What Comes Next
The test is delivery. Watch whether Congress and the government stick to the spending cuts in the planned rescue bill and the 2027 budget.
Also watch the rating agencies, and whether an IMF contingent programme takes shape.
Sources: Valora Analitik, Bank of America raises its bet on Colombia, 25 September 2026; Portafolio, Colombia moves away from the fiscal rule, 4 September 2026; Portafolio, CARF warns on the deficit, 11 September 2026; La República, the fiscal adjustment bill, 1 September 2026. Exchange rate: Colombia’s official TRM for 25 September 2026, 3,329.61 pesos per US dollar.
Frequently Asked Questions
What did Bank of America change on Colombia?
It raised its recommendation on Colombia’s external sovereign debt to overweight from marketweight. Valora Analitik reported the change on 25 September 2026.
Why is Bank of America more positive on Colombia bonds?
It sees the new government’s fiscal adjustment as sustained and structural. About 70% of the planned effort comes from spending cuts, which the bank says hurt growth less than tax rises.
What deficit does Bank of America expect for Colombia?
It sees a primary deficit of 3.1% of GDP in 2026, 2.5% in 2027 and 1.5% in 2028. The overall deficit should fall to 6% of GDP by 2028.
What could go wrong?
The bank points to reconstruction costs after the August 2026 earthquake. It also flags inflation risks from El Niño and from minimum-wage rises, and the rescue bill is not yet in Congress.
Connected Coverage
- Colombia Plans a US$6.84 Billion Spending Cut After Abyss Warning
- Fitch: Colombia’s 2027 Budget Puts Debt on a Steeper Path
- Colombia’s Fiscal Rule Return Ruled Out in the Near Term
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