Peru Yields Post Biggest Weekly Drop in Month as Sol Rallies

Peruvian bond yields posted their steepest weekly drop in a month as investors sought assets they expect to gain from a rally in the local currency.

The yield on the nation’s benchmark 7.84 percent sol- denominated bond due in August 2020 decreased 17 basis points, or 0.17 percentage point, this week to a record low 3.72 percent at 3:20 p.m. in Lima, according to prices compiled by Bloomberg. The price rose 1.2 centimos to 126.42 centimos per sol. The yield fell four basis points today.

Peru is a solid credit,” said Alberto Jabiles, a bond trader at Banco Continental SA in Lima. The fall in yields is “a result of scarcity of supply and so many investors wanting to somehow gain exposure to Peru.”

Foreign direct investment and demand for the government’s sol bonds have pushed the currency to a 16-year high. The central bank raised reserve requirements Dec. 30 as part of efforts to rein in lending and help soak up dollar inflows.

The sol appreciated 0.3 percent to 2.5440 per U.S. dollar, according to prices compiled by Bloomberg. That is the strongest close since October 1996, data from Peru’s financial regulator show. The currency was little changed on the week.

The central bank will continue buying dollars in the spot market to boost international reserves and slow the sol’s advance, research director Adrian Armas told reporters on a conference call today.

The bank bought $60 million today and said on its website it paid an average 2.5458 per U.S. dollar. Purchases totaled a record $13.9 billion last year.

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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