From TES to US Treasury bills, notes and bonds

Many people who grew up in Colombia met government debt through TES, the securities the national government sells to finance itself. This lesson describes TES as they work today, maps them to US Treasury bills, notes, bonds and Treasury Inflation-Protected Securities, and shows where the two sit apart: currency, tax and selling before maturity.

What TES are

TES is short for Títulos de Tesorería, debt securities of the Colombian national government. The Ministerio de Hacienda y Crédito Público issues them, and the Banco de la República, the central bank, administers them and runs the auctions where they are sold. The Superintendencia Financiera, the financial regulator, lists TES in pesos, in UVR and in pesos linked to the TRM, a reference exchange rate.

Class B TES are the ones the government uses to finance itself. This lesson looks at two common kinds: fixed rate TES in pesos and TES in UVR.

UVR stands for Unidad de Valor Real, a unit of account certified by the Banco de la República that follows Colombia's consumer price index, the IPC. Each period it applies the IPC change of the calendar month before, not the current one. A TES denominated in UVR pays a fixed rate on a principal counted in those units, so the pesos it returns move with Colombian inflation.

In an auction held on October 2, 2024, the Ministerio de Hacienda sold TES in UVR maturing in 2029, 2037 and 2049, which is five, thirteen and twenty-five years ahead.

The US securities that do a similar job

Treasury bills have terms that range from four weeks to 52 weeks. They are sold at a discount or at par (face value), pay nothing along the way, and pay their face value when they mature.

Treasury notes are sold for terms of 2, 3, 5, 7 or 10 years, and Treasury bonds for 20 or 30 years. Both pay a fixed rate of interest every six months until they mature, calculated on the par value. The rate is set at the auction and does not change afterwards.

Treasury Inflation-Protected Securities, known as TIPS, are sold for 5, 10 or 30 years. The Treasury adjusts their principal using a version of the Consumer Price Index from the Bureau of Labor Statistics, and pays a fixed rate every six months on that adjusted principal. TIPS are the closest US counterpart to a TES in UVR, because both pay a fixed rate over a principal that follows a price index, but the index, the currency and the issuer are all different.

The minimum purchase is $100, in increments of $100. You can buy these securities in a TreasuryDirect account, the Treasury's own site, which takes noncompetitive bids only, or through a bank, broker or dealer.

Where the two sit apart

Who owes the money is the first difference. A TES is a debt of the Colombian government, and the kinds described here pay in Colombian pesos, including when the principal is counted in UVR. A US Treasury security is a debt of the US government and pays in US dollars.

Tax is the second. Interest on US Treasury securities is subject to federal income tax and exempt from all state and local income taxes, and interest of $10 or more is generally reported to you on Form 1099-INT. With TIPS, an increase or decrease in the principal during the year may also affect your federal taxes. Colombian rules for TES are set in Colombia and are different.

Because two countries are in the picture, tax, reporting or benefit rules can apply on both sides, and a licensed professional who knows both systems is the person who can work through a particular case.

Selling early is the third. You can hold a bill, note or bond until it matures or sell it before then. The price depends on yields at that moment: when the yield to maturity is greater than the interest rate on the security, the price is less than par value. Held to maturity, a bill, note or bond pays its face value, and a TIPS pays its adjusted principal or the original amount, whichever is greater. Sold earlier, any of them can be worth less than you paid.

A worked example in dollars

Suppose a 5 year Treasury note with a par value of $5,000 is bought at an auction where the interest rate is set at 4 percent. Four percent of $5,000 is $200 a year, paid in two parts of $100, one every six months.

Over five years that is ten payments of $100, so $1,000 of interest, and at maturity the Treasury pays back the $5,000 par value. Sold after two years instead, the note would already have paid $400 of interest, and its price that day could be above or below $5,000. The 4 percent is a round number for the example, not a current rate.

What to remember

• TES are debt of the Colombian national government, issued by the Ministerio de Hacienda and administered by the Banco de la República. Two common kinds are fixed rate TES in pesos and TES in UVR.
• The US Treasury sells bills (four weeks to 52 weeks), notes (2 to 10 years), bonds (20 or 30 years) and TIPS (5, 10 or 30 years).
• TIPS are the closest US counterpart to a TES in UVR, but the index, the currency and the issuer are all different.
• Interest on US Treasury securities is taxed federally, is exempt from state and local income taxes, and is generally reported on Form 1099-INT.
• A Treasury security sold before it matures can be worth less than you paid.