El Salvador, the first country to adopt Bitcoin as legal tender, is seeing a massive surge in interest from big banks as the nation’s dollar bonds continue to stage an impressive rally. El Salvador’s dollar bonds rallied more than 70% in 2023 – the best among all emerging countries.
El Salvador Dollar Bonds Up Over 70% in 2023
In 2023, dollar bonds issued by El Salvador experienced a strong rally, surging by over 70%. Bloomberg reported that the impressive performance positioned them as the leading performers among dollar bonds within the emerging market segment on Wednesday.
The rally comes as El Salvador bonds garnered the attention of major institutional investors, even those who were once entirely avoiding securities issued by Central American nation. JPMorgan Chase, Eaton Vance, and PGIM Fixed Income are among lenders who have placed bets on El Salvador dollar bonds.
“Although we missed a significant share of the rally, we still think there’s value across El Salvador’s curve. There’s room for this credit to keep outperforming.”
– JPMorgan research strategists wrote in a July note.
The additional yield investors require to hold Salvadorian sovereign bonds over US T-bills has more than halved over the past year. Bonds with maturity dates in 2035 and beyond are trading below the distress threshold of 10 percentage points (pp). El Salvador’s bond rally of over 70% compared to a 6.6% average return across an emerging country index.
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El Salvador’s Bitcoin Bet and Bond Market Push
The renewed interest in El Salvador’s dollar bonds highlights how the country’s president Nayib Bukele managed to win acceptance from both big money managers and his peers in Latin America.
Many initially characterized Bukele as an anti-establishment maverick, but his uncompromising stance on gangs and commitment to paying bondholders turned him into a favorite among emerging-market investors.
Bukele has also been known as a loud proponent of Bitcoin, the leading cryptocurrency asset he adopted as the official El Salvador currency in 2021. His obsession with Bitcoin scared off many global lenders. However, the 42-year-old politician regained bond investors’ trust after orchestrating two debt buybacks, hiring a former International Monetary Fund (IMF) expert as an adviser, and repaying $800 million of bonds.
Meanwhile, El Salvador’s government remains committed to Bitcoin and its efforts to grow the local crypto ecosystem. Earlier this month, the country’s regulators granted Binance licenses to begin offering digital asset services, just a few months after welcoming Bitfinex.
Do you think El Salvador will continue attracting big money managers’ attention? Let us know in the comments below.
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