Peruvian Sol Gains as Fed Asset Purchase Plan Spurs Yield Demand

Peru’s sol rose the most in a month after the Federal Reserve said it will expand holdings of mortgage securities to bolster the world’s largest economy, fueling demand for higher-yielding, emerging-market assets.

The sol appreciated 0.3 percent to 2.5980 per U.S. dollar at today’s close, according to Deutsche Bank AG’s local unit. The sol is trading below 2.60 for the first time since 1997, data from Peru’s financial regulator show.

The U.S. central bank said it will make open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing. Increased demand for riskier assets will boost demand for the sol and Peru’s short-maturity bonds, said Hedmond Rios, an economist at Celfin Capital in Santiago.

“With abundant liquidity in international markets, investors will try to take advantage of the rate differential versus U.S. Treasuries and greater appreciation in the sol,” Rios said. The sol will probably trade at about 2.59 in the “very short term” before returning to levels above 2.60, Rios said.

Peru’s central bank bought $60 million in the spot currency market today to stem gains in the sol. The bank said on its website it paid an average 2.6024 soles per U.S. dollar.

The yield on the nation’s benchmark 7.84 percent sol- denominated bond due August 2020 fell one basis point, or 0.01 percentage point, to 4.42 percent, according to data compiled by Bloomberg. The price rose 0.08 centimo to 122.49 centimos per sol.

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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