As Bitcoin Rises, El Salvador’s Sovereign Bonds Soar 60% In 2023
Bonds issued by El Salvador, the first country in the world to establish Bitcoin (BTC) as legal tender, are up 60% in value this year – rivaling Bitcoin’s 80% gains.
The sudden demand for the country’s national debt represents a massive sentiment shift around its financial position. Yields for El Salvador’s 10-year debt ran as high as 24% just 12 months ago, in line with distressed economies like Ukraine and Argentina.
However, the country successfully repaid $800 million of short-term debt in January, alongside interest, proving both media and credit rating agencies wrong.
Last year, Morgan Stanley anticipated that it was a good time to buy Salvadoran bonds, believing the government could “muddle through” its interest payments in the short term.
Aaron Stern, Chief Investment Officer at Converium Capital in Montreal, told Reuters that the nation’s bond prices were “divorced from fundamentals,” in the summer of 2022.
“The market was concerned about the administration’s willingness to pay,” he said. Now, the nation’s bonds look attractive next to the debt prices of other emerging market nations.
Data from Refinitiev shows that the nation’s bonds currently yield between 14% and 18%. Despite their bullish performance this year, some believe it’s not time to cash out.
“El Salvador is somewhat uniquely positioned as one of the highest yielding ‘performing’ distressed credits,” said BNP Paribas’ Nathalie Marshik, a managing director for Latin America fixed income.
El Salvador’s bond performance has mimicked that of Bitcoin throughout the past year, crashing in the summer of 2022 before rallying across the first half of 2023.
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