El Salvador’s dollar bonds saw a significant uptick Thursday, garnering the most substantial rise in the emerging markets, following the approval of amendments to the nation’s Bitcoin law by its lawmakers. These changes were crucial to secure a loan from the International Monetary Fund.
Government debt reflected gains across the board, with securities due in 2054 climbing 2.7 cents on the dollar to reach 107 cents, according to Bloomberg’s pricing data. This surge indicates investors are optimistic about El Salvador nearing the $1.4 billion deal with the IMF.
“This was the legislation they needed to pass to clinch the multilateral funding,” explained Jason Keene, a strategist at Barclays. “We anticipate the IMF Board will give its approval in the coming weeks.”
The alterations made by congress now make it optional for businesses to accept Bitcoin as payment, and stipulate that the government must fulfill its domestic and foreign obligations in the currency in which they were initially issued, as reported by La Prensa Grafica.
El Salvador currently holds 6,049 Bitcoin in its reserves, approximately valued at $636 million, and has been increasing its holdings over the past week, according to government data.
Milena Mayorga, El Salvador’s Ambassador to the US, stated that the country remains committed to making daily Bitcoin purchases and will uphold the “ecosystem” supporting digital assets, despite the newly enacted legislation.
El Salvador’s dollar debt has delivered a remarkable 30% return to investors over the past year, which is about three times the average yield of an index of emerging-market sovereign bonds.
Back in 2021, El Salvador made headlines as the first nation to adopt cryptocurrency as legal tender alongside the dollar, catapulting President Nayib Bukele to fame as a crypto trailblazer while clashing with the IMF, which opposed the move.
After lengthy talks, Bukele conceded to modify the law to align with IMF expectations. This concession has buoyed bond prices, with some now trading above par.
While the bonds might continue performing well if the country pursues further economic reforms, “an IMF deal is pretty fully valued here,” mentioned Thys Louw, a portfolio manager at Ninety One UK Ltd.
