Peru Borrowing Costs Rise to Three-Month High on European Crisis

Peru’s benchmark borrowing costs in dollars rose to a three-month high as concern that Europe’s debt crisis will worsen should Greece leave the euro curbed demand for higher-yielding, emerging-market assets.

The extra yield investors demand to own Peruvian government bonds instead of U.S. Treasuries climbed eight basis points, or 0.08 percentage point, to 198 at 2:53 p.m. in Lima, according to JPMorgan Chase & Co. That’s the highest since Feb. 28.

European Union leaders are meeting in Brussels to discuss ways to prevent Greece’s fiscal crisis from spreading to other euro-zone nations.

“Lately these meetings have been non-events as they haven’t produced clear, concrete measures,” said Roberto Flores, the head of research at Inteligo SAB, a Lima-based brokerage. “The uncertainty is encouraging investors to seek risk-free assets.”

The sol dropped 0.7 percent to 2.6925 per U.S. dollar, falling the most since Sept. 21, according to Deutsche Bank AG’s local unit.

The yield on the nation’s benchmark 7.84 percent sol-denominated bond due August 2020 climbed seven basis points to 5.29 percent, according to prices compiled by Bloomberg.

Investor “nervousness” before elections in Greece has fueled demand for dollars in the local market, Peru central bank President Julio Velarde told reporters yesterday.

Rising demand led the central bank to lend U.S. currency to local banks using repurchase agreements for the first time last week as the interbank rate for dollars touched 6 percent, he said.

The central bank continued to sell dollar-denominated repos today, issuing $2 million of the securities maturing in seven days and yielding 2.65 percent. It also issued 600 million soles ($223 million) in dollar-indexed certificates of deposit due in two months, the bank said on its website.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE