Peru Sol Bonds Rise on Bets Stronger Currency to Boost Allure
Peru’s sol-denominated bonds rose, pushing down yields, on speculation an appreciating currency will make the debt more attractive.
The yield on the nation’s benchmark 7.84 percent sol- denominated bond due in August 2020 fell three basis points, or 0.03 percentage point, to a record low 3.95 percent at 1:35 p.m. in Lima, according to data compiled by Bloomberg. The price climbed 0.20 centimo to 125.35 centimos per sol.
Foreign investment is fueling the fastest economic growth in South America and boosting Peru’s currency, which is trading at a 16-year high. While the central bank has bought $13 billion this year to stem gains, the purchases “don’t change the trend in the sol, which has appreciated strongly” in the past month, said Estefany Castillo, an economist at Scotiabank Peru in Lima.
“It makes sense for offshore investors to take financing in dollars at a lower rate and buy sol bonds that have higher yield,” Castillo said. “Yields will keep falling as long as there’s liquidity in the international market and opportunities for carry” in Peru, she said. Carry trade investors buy higher- yielding assets with funds borrowed from countries with lower interest rates.
Foreign direct investment rose 41 percent to $2.82 billion in the third quarter compared with the same period a year earlier, the central bank said in a Nov. 26 report.
The sol gained 0.1 percent to 2.5775 per U.S. dollar, according to Deutsche Bank AG’s local unit. The currency touched 2.5749, the strongest level since 1996, data from Peru’s financial regulator show.
The sol has appreciated 0.8 percent in the past month, the biggest gain among major Latin American currencies tracked by Bloomberg.
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