Peruvian Bonds Rise to 3-Month High on Bets Economy to Rebound
Peruvian bonds rose to a three-month high as investors bet the South American nation’s economy will keep growing after President-elect Ollanta Humala takes office.
The yield on the nation’s benchmark 7.84 percent sol- denominated bond due August 2020 fell two basis points, or 0.02 percentage point, to 6.25 percent, according to prices compiled by Bloomberg. The bond’s price rose 0.14 centimo to 110.89 centimos per sol, the highest since March 18.
President Alan Garcia said the Peruvian economy remains “healthy” and “vigorous” even after the pace of growth slowed in the second quarter. Expansion will accelerate afterHumala takes power July 28 and announces his economic policies, Garcia told reporters in Lima.
“Investors’ perception of the incoming government has improved and they’re just waiting for policies to be announced,” said Mario Guerrero, an economist at Scotiabank Peru. “Some investors may have brought forward their investments in fixed income. Once the policies have been announced, if they are in line with what the market has been expecting, there may be some bigger purchases.”
The Peruvian sol gained 0.1 percent to 2.7460 per U.S. dollar, from 2.7490 yesterday, according to Deutsche Bank’s local unit.
Economic activity has slowed amid concern Humala’s pledges to increase mining royalties and enlarge state companies may deter the foreign investment that fuelled the region’s fastest growth of the last decade.
Bond Purchases
Foreign investors renewed bond purchases in the second half of June as Peru’s political risk eased and investors bet the central bank will be under less pressure to raise its benchmark lending rate after consumer prices fell, according to Deutsche Bank, one of six banks approved to trade Peruvian government debt in the domestic market.
The yield on the 2020 bond has dropped 66 basis points since the initial sell-off triggered by Humala’s June 5 election victory.
“Economic fundamentals will continue to favor Peruvian sovereign bonds,” Deutsche Bank said in a statement to the Finance Ministry released today. “The curve can rally a little more, but the back-end should outperform as longer-term bonds have lagged and the curve seems steep.”
To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net
To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net
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