(Bloomberg) — El Salvador’s dollar bonds rose the most in emerging markets Thursday after lawmakers approved changes to the nation’s Bitcoin law that were needed to secure an International Monetary Fund loan.
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Government debt gained across the curve, with notes due in 2054 rising 2.7 cents on the dollar to 107 cents, according to indicative pricing data compiled by Bloomberg. The jump signaled investor optimism that the Central American country is close to cinching the $1.4 billion deal with the IMF.
“This was the law they needed to pass” to get the multilateral funding, said Barclays strategist Jason Keene. “We expect to see the IMF Board approval in the coming weeks.”
The changes approved by congress make it voluntary for businesses to accept Bitcoin as a form of payment. It also requires the government to pay its domestic and foreign obligations in the currency they were issued, according to a report in the newspaper La Prensa Grafica.
The country has 6,049 Bitcoin in its reserves, worth about $636 million, and has been adding over the past seven days, according to a government tally.
El Salvador’s Ambassador to the US Milena Mayorga said the nation is still committed to making daily Bitcoin purchases and would maintain the “ecosystem” that supports digital assets, despite the new legislation.
Outperformance
El Salvador’s dollar debt has handed investors a 30% gain over the past 12 months, about triple the average return across an index of emerging-market sovereign bonds.
In 2021, El Salvador became the first country to adopt the cryptocurrency as legal tender — along with the dollar — instantly giving President Nayib Bukele fame as a Bitcoin pioneer and pitting his country against the IMF, which objected to the idea.
After years of negotiation, Bukele relented and agreed to changes in the law to comply with the IMF. That’s helped drive prices in the bonds, some of which now trade above par.
While bonds can continue to perform if the country delivers further economic reforms, “an IMF deal is pretty fully valued here,” said Thys Louw, a portfolio manager at Ninety One UK Ltd.
–With assistance from Jim Wyss.
(Updates prices in second paragraph, adds context starting in fifth.)
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