El Salvador Bonds: Significant High Returns Lures Critics

• El Salvador dollar bonds had the highest return among developing markets, at 70%.
• Now these bonds have been recommended or bought by well-known financial institutions.

When El Salvador began accepting Bitcoin a few years ago, it drew criticism from prominent financial institutions. However, Bonds issued by the government of El Salvador have risen in value recently, and large financial institutions such as JPMorgan, Eaton, and PGIM can no longer afford to ignore this trend. El Salvador dollar bonds had the highest return among developing markets, at 70%.

El Salvador’s 10-year bond rates hit 24% a year ago, placing it in line with other developing countries like Ukraine and Argentina. However, now these bonds have been recommended or bought by well-known financial institutions that are optimistic about their further price appreciation, such as JPMorgan Chase & Co., Eaton Vance, and PGIM Fixed Income.

Significant Wager on Bitcoin

President Nayib Bukele of El Salvador has placed a large wager on Bitcoin being the country’s legal currency in the year 2021. He has also proposed the unpopular but potentially lucrative “bitcoin volcano bonds.” The bond market of the nation was quickly deemed unstable by many major participants, who promptly issued downgrades.

By coordinating two debt buybacks, Bukele has calmed the bond market’s most pressing concerns. He was able to effectively repay $800 million in debts, and he even hired an adviser who had experience working at the International Monetary Fund.

Investors no longer need a premium of over 50% to hold Salvadoran government bonds instead of equivalent US Treasuries. The country’s banking on Bitcoin has largely paid off with a spike in tourism and much-needed global attention. Moreover, recently, Binance shared the news that it now has a complete license to do business in El Salvador.

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