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El Salvador bonds are falling as investors see bitcoin use, the IMF speaks

El Salvador bonds are falling as investors see bitcoin use, the IMF speaks

NEW YORK, SEPTEMBER 16 (Reuters) – El Salvador US Treasury bond yields hit a record high on Thursday as investors fear that the Central American nation will not reach a $ 1 billion potential loan deal with the International Monetary Fund and face negative credit implications connected to its use of bitcoin.

S&P Global said risks associated with the country’s adoption of bitcoin as a parallel legal tender for the US dollar “appear to outweigh its potential benefits” and that there are “immediate negative consequences for credit.” Read more

S&P also said the use of bitcoin threatens a potential deal between El Salvador and the IMF.

Government bond spreads for comparable US Treasuries (.JPMEGELSR) rose to 986 basis points on Thursday, surpassing the previous record-high voltage hit in May 2020.

Reuters graphics

Bond prices are close to lows in October last year before rising to record highs in mid-April.

“These new price cuts may encourage capitulation from long-term core positions, which are forced to reassess their overweight positions without an IMF anchor,” said Siobhan Morden, head of Latin America’s fixed income strategy at Amherst Pierpont Securities, in a client note.

“The economic agenda remains subordinate to the political agenda without a clear framework for budgetary financing, no apparent commitment to fiscal discipline and a political agenda that remains a drag on investment and growth.”

Thousands of Salvadorans marched on Wednesday to protest a perception of power grabs by President Nayib Bukele, who is otherwise popular with the public. Bitcoin policy was also a target of the protest, and an ATM where the cryptocurrency can be exchanged for dollars was vandalized.

The rapid firing of judges in the Constitutional Panel of the Supreme Court in May and the recent court ruling that the president can sit for two consecutive terms, which opens the door for Bukele to run for re-election in 2024, have soured his relationship with United States .

US votes carry the greatest weight for any IMF loan decision.

The potential for an IMF program for El Salvador is “under discussion,” fund spokesman Gerry Rice said in a news conference earlier Thursday, adding that anti-corruption and fiscal responsibility are high on the agenda.

The Fund did not immediately respond to a request for comment regarding S & P’s statement of risks to a potential agreement.

Reporting by Rodrigo Campos Further reporting by Nelson RenterĂ­a and Marc Jones Editing by Paul Simao

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