JPMorgan Looks Past El Salvador’s Bitcoin Bet, Joins Bond Rally

As the Latin American nation El Salvador embraced Bitcoin a few years ago, it attracted a lot of negative comments with top financial giants questioning the financial stability of the country.

However, the recent bond rally in El Salvador has become too lucrative to ignore for financial giants like JPMorgan, Eaton, and PGIM. With an eye-popping 70% return, the El Salvador dollar bonds are the best-performing among emerging markets.

Notable names like JPMorgan Chase & Co, Eaton Vance, and PGIM Fixed Income have either suggested or acquired these bonds, expressing confidence that their upward trajectory will persist. Moving overweight on El Salvador’s debt, JPMorgan research strategists Ben Ramsey, Nishant Poojary and Gorka Lalaguna wrote:

“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.”

El Salvador President Nayib Bukele took a big bet on Bitcoin making it the country’s official currency in 2021. He has also floated bitcoin volcano bonds, that have yet to see strong acceptance. Soon after, several big players downgraded the country’s bond market calling it fragile.

Bukele has alleviated the most concerning apprehensions of the bond market by orchestrating two instances of debt buybacks. He also recruited an advisor who was a former International Monetary Fund veteran and managed to successfully repay $800 million worth of bonds.

El Salvador Bonds In Demand

The premium that investors require to hold Salvadoran government bonds instead of comparable US Treasuries has decreased by over fifty percent in the past year. Bonds that mature in 2035 and beyond are trading below the critical threshold of 10 percentage points which marks distress.

This performance of the country’s bonds stands in contrast to an average return of 6.6% seen across a benchmark index of developing nations. Zulfi Ali, a portfolio manager at 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”.

In addition to JPMorgan, Eaton Vance, and PGIM, data gathered by Bloomberg shows that Lord Abbett & Co LLC, Neuberger Berman Group LLC, and UBS Group AG have also included the bonds in their holdings since April.

Mila Skulkina, a money manager at Lord Abbett said: “El Salvador has benefited from proactive and prudent management of its balance sheet, including a debt buyback during the second half of 2022 and material pension reform”.

Samson Mow, a popular figure in the crypto ecosystem and the CEO of JAN3, recently praised El Salvador’s Bitcoin ecosystem.