Peru’s sol-denominated bonds posted the biggest weekly advance in two months as rising metal prices boosted the outlook for the Andean nation’s currency.
The yield on the benchmark 7.84 percent sol-denominated bond due August 2020 fell 19 basis points, or 0.19 percentage point, to 4.19 percent this week. It fell two basis points today. The price rose 0.13 centimo to 124.11 centimos per sol.
The sol strengthened today for the first time in a week as copper climbed on speculation European officials will unveil a bailout plan for Spain as early as next week, easing concern that metal demand will slow. Gold also rose. Metals, led by copper and gold, account for about two-thirds of Peru’s exports.
“Investors are buying bonds in the short end of the curve purely as a play on the currency,” said Alberto Jabiles, a trader at BBVA Banco Continental in Lima. “High commodity prices are going to help the economy and represent real export flows. Investment also remains strong, which means more dollar inflows.”
The sol appreciated 0.1 percent to 2.5990 per U.S. dollar, from 2.6025 yesterday, according to Deutsche Bank AG’s local unit. The currency weakened less than 0.2 percent this week after touching 2.5950 on Sept. 14, the strongest level since 1997, data from Peru’s financial regulator show.
Peru’s central bank bought $20 million in the spot currency market today and paid an average 2.6005 soles per U.S. dollar, it said on its website.
Banks are betting the sol will strengthen “in the coming months” as demand for local bonds increases and companies bring in dollars for investment, Fernando Palma, a strategist at Banco Bilbao Vizcaya Argentaria, wrote in a note to clients yesterday. The currency will likely appreciate to 2.58 by Dec. 31, and 2.5 by the end of next year, he wrote.
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