El Salvador’s Bitcoin Bet Pays Off As Bonds Skyrocket With 70% Returns – Eaton Vance Short (NYSE:EVG)

El Salvador president Nayib Bukele‘s embracing of Bitcoin (CRYPTO: BTC) was initially met with skepticism on Wall Street. However, the subsequent bond rally, boasting 70% returns, is now drawing investors who had previously been wary or had avoided the country’s securities.

These returns are the highest among dollar bonds from emerging markets in 2023, Bloomberg reported.

JPMorgan Chase & Co (NYSE:JPM), Eaton Vance (NYSE:EVG) and PGIM Fixed Income have either recommended or purchased the debt, anticipating further growth.

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JPMorgan research strategists Ben Ramsey, Nishant Poojary, and Gorka Lalaguna expressed their confidence back in July, stating, “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.”

Bukele’s acceptance among money managers and Latin American peers has grown, despite initial concerns about his anti-establishment image.

His tough approach to gangs, resulting in a significant reduction in crime, is influencing regional politics. Additionally, his commitment to bondholders is earning him favor among emerging-market investors.

While some apprehensions persist regarding alleged human rights abuses and Bukele’s strong focus on Bitcoin (which became an official currency in 2021), he has alleviated the bond market’s major concerns by conducting two debt buybacks, hiring a former International Monetary Fund veteran as an adviser, and repaying $800 million of bonds.

The additional yield that investors require to hold Salvadoran sovereign bonds over comparable US Treasuries has decreased by more than half in the past year.

Bonds maturing in 2035 and later are trading below the 10 percentage-point thresholds considered distressed, a stark contrast to the 6.6% average return across an index of developing nations.

Other firms, including Lord Abbett & Co LLC, Neuberger Berman Group LLC, and UBS Group AG (NYSE:UBS), have also added the debt since April, reflecting a broader shift in investor sentiment towards El Salvador’s economic prospects.

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