El Salvador’s recent bond rally, which has yielded impressive profits, has attracted the attention of major financial players like JPMorgan, Eaton, and PGIM. Despite initial skepticism surrounding El Salvador’s adoption of Bitcoin as its official currency and the issuance of Bitcoin bonds, these traditional financial giants have shown confidence in the country’s upward financial trend. Notable firms such as JPMorgan Chase & Co, Eaton Vance, and PGIM Fixed Income have either recommended or invested in El Salvador’s bonds.
Attracting attention: El Salvador’s Bitcoin bonds
President Nayib Bukele’s risky decision to adopt Bitcoin and issue Bitcoin bonds initially raised concerns about the country’s financial stability. However, the recent rally in El Salvador’s bond market, with a remarkable 70% return on dollar bonds, has proven lucrative. JPMorgan strategists highlighted the potential value in El Salvador’s bond curve, believing it has room for further growth.
To address worries about the bond market’s fragility, Bukele took steps to boost investor confidence. He conducted debt buybacks and enlisted the expertise of a former International Monetary Fund veteran. As a result, El Salvador successfully repaid $800 million worth of bonds.
Increase in demand for El Salvador bonds
Demand for El Salvador’s government bonds is on the rise, evident from the nearly 50% decrease in the premium investors demand to hold these bonds compared to similar US Treasury bonds. Bonds maturing beyond 2035 are trading favorably, even surpassing a reference index’s average return for emerging markets (6.6%). Alongside JPMorgan, Eaton Vance, and PGIM, other financial entities like Lord Abbett & Co LLC, Neuberger Berman Group LLC, and UBS Group AG have also integrated El Salvador’s bonds into their portfolios since April.
Mila Skulkina, a portfolio manager at Lord Abbett, attributed El Salvador’s success to effective balance sheet management, a well-executed debt buyback in 2022, and significant pension reform. This collective effort has contributed to the country’s impressive financial performance and increased investor confidence in its bonds.
