Despite last year’s economic challenges and policy turmoil, El Salvador’s international bonds have rebounded, offering a yield of 60% in 2023. El Salvador’s international bonds to publish 60% return in the first half of 2023 alone.
In July 2022, El Salvador had to deal with tensions with Washington and diminishing access to financing from the International Monetary Fund (IMF). Additionally, there was uncertainty surrounding the decision to accept bitcoin as legal tender. As a result, the value of El Salvador’s bonds fell dramatically, dropping to just 25% of their original value.
However, the situation improved in the first half of 2023. El Salvador initiated two unexpected debt buybacks, easing the country’s repayment obligations until 2027.
The move, along with the appointment of a former IMF official as an advisor to the Finance Ministry, was viewed favorably by investors.
Recruiting Alejandro Werner, a former IMF official, has rekindled hopes of a possible deal with the IMF. Its participation can also lead to more orderly policy making.
As a result, the value of the bond due in 2025 has increased from about $0.27 a year ago to its current trading price of $0.89.
Recently data It also shows that El Salvadoran bond prices are on the rise, with the 2041 bond rising to $0.60. These bonds are currently yielding between 14% and 18%, making them the best performing sovereign bonds in the first half of the year, with total returns close to 60%.
According to Aaron Stern of Conference Capital in Montreal, El Salvador’s bond prices did not reflect the actual situation last summer. Market concerns focused on whether the government could live up to its responsibilities.
Stern says that El Salvador’s bonds offer a competitive value compared to many of the high-priced bonds in emerging markets.
According to Shamaila Khan of UBS Asset Management, President Najib Bukele’s administration has prioritized continued market access, a crucial point given that El Salvador is operating on a dollar-based economy.
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By December 2022, El Salvador’s debt-to-output ratio had fallen to 77%, the lowest level since 2019. Expectations point to a further decline this year, followed by a slight rise to 78% in 2024. Total public debt fell from $25.4 billion at the end of 2022 to $19.7 billion in May.