JPMorgan and BlackRock Awe-Struck: El Salvador’s Bitcoin Bonds Yield 70% Annually

• El Salvador’s dollar bonds yield a lucrative 70% annually, garnering attention from Wall Street powerhouses like JPMorgan Chase.
• President Nayib Bukele’s pro-active approach towards debt repayment and Bitcoin investments has reshaped market sentiment.

El Salvador’s Bond Game Changer

When President Nayib Bukele of El Salvador embraced Bitcoin two years prior, it sent ripples of apprehension through Wall Street. Fast forward to the present, the once-doubtful are now captivated by the substantial yields offered by the country’s bonds. Amidst the spectrum of emerging market bonds denominated in dollars, El Salvador stands out, dominating the performance charts this year.

Why Bukele’s Dollar Bonds Are the Talk of the Town

With a staggering annual return of 70% on Bukele’s dollar bonds, as highlighted by Bloomberg, Wall Street’s early disdain has rapidly transformed into avid interest. Financial juggernauts, JPMorgan Chase, Eaton Vance, and PGIM Fixed Income, having previously been skeptics, are now among the keen purchasers of these bonds.

JPMorgan’s research strategists remarked in a July note,

“Although we missed a significant share of the rally, we still think there’s value across El Salvador’s curve. There’s room for this credit to keep outperforming.”

Dollar bonds, for the uninitiated, are essentially bonds issued in USD. This means they offer a twofold advantage: diversifying into foreign assets, such as Bitcoin in this context, without the perils of currency fluctuations.

To instill further confidence among bondholders, Bukele has actively prioritized debt repayment, incorporating strategies like buybacks and onboarding an expert from the IMF as an advisor.

Zulfi Ali of PGIM noted,

“The story continues to be positive on the fiscal accounts and Bukele has continued to be very consistent in signaling to bondholders that he’s serious about paying the debt.”

As sentiment shifts, entities including Lord Abbett & Co, Neuberger Berman Group, and UBS Group have started to perceive El Salvador as a value buy, despite potential risks, with Mila Skulkina of Lord Abbett adding that the country has been strategically and wisely managing its balance sheet.

The Bitcoin Connection

Amidst the bond evolution, El Salvador’s Bitcoin venture cannot be overlooked. They initiated their Bitcoin journey in September 2021 and remained active buyers even during 2022’s bear market. Their current Bitcoin treasury holds 2,924 coins, amounting to roughly $85.3 million. Despite being down by 30% with an average cost of $41,240 per Bitcoin, this move has lured several crypto entities, including Binance and Tether, towards El Salvador.