El Salvador’s Bitcoin Bonds are Becoming Attractive for Financial Giants

• The recent bond rally in El Salvador has become too profitable to ignore for financial giants such as JPMorgan, Eaton, and PGIM.
• Notable names like JPMorgan Chase & Co, Eaton Vance, and PGIM Fixed Income have recommended or purchased these bonds, expressing their confidence in the continuation of the upward trend.
• El Salvador’s President Nayib Bukele took a big gamble by making Bitcoin the country’s official currency in 2021. He also issued Bitcoin bonds, which have not yet gained strong acceptance.

El Salvador’s remarkable Bitcoin bonds caught the attention of financial giants; $800 million worth of bonds were successfully repaid.

El Salvador’s Bitcoin Bonds Attract Attention

A few years ago, the Latin American country El Salvador faced negative comments from top financial giants questioning the country’s financial stability when it adopted Bitcoin.

However, the recent bond rally in El Salvador has become too profitable to ignore for financial giants such as JPMorgan, Eaton, and PGIM. With an impressive 70% return, El Salvador’s dollar bonds have been one of the best-performing among emerging markets.

Notable names like JPMorgan Chase & Co, Eaton Vance, and PGIM Fixed Income have recommended or purchased these bonds, expressing their confidence in the continuation of the upward trend. Focusing on El Salvador’s debt, JPMorgan research strategists Ben Ramsey, Nishant Poojary, and Gorka Lalaguna wrote:

“While we may have missed a significant portion, we still believe there is value in El Salvador’s curve. This credit has the potential to perform better.”

El Salvador’s President Nayib Bukele took a big gamble by making Bitcoin the country’s official currency in 2021. He also issued Bitcoin bonds, which have not yet gained strong acceptance. Following this, many major players considered the country’s bond market fragile.

Bukele alleviated concerns about the bond market by organizing two debt buybacks. He also hired an advisor who is a former International Monetary Fund veteran and successfully repaid $800 million worth of bonds.

Demand for El Salvador Bonds is Increasing

The premium investors demand to hold El Salvador government bonds compared to similar US Treasury bonds decreased by nearly 50% last year. Bonds maturing in 2035 and beyond are trading 10 basis points below the distress threshold.

This performance of the country’s bonds stands in contrast to the average return of 6.6% seen in a reference index for emerging markets. In addition to JPMorgan, Eaton Vance, and PGIM, Lord Abbett & Co LLC, Neuberger Berman Group LLC, and UBS Group AG have also added the bonds to their portfolios since April, according to data collected by Bloomberg.

Mila Skulkina, a portfolio manager at Lord Abbett, said, “El Salvador has benefited from conscious and forward-looking balance sheet management, a debt buyback in the second half of 2022, and a significant pension reform.”