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Peru Bond Yields Decline on Foreign Demand; Sol Little Changed

Peruvian bond yields fell to within three basis points of a record low on speculation international demand for the country’s assets will continue even as policy makers seek to slow the appreciation of the local currency.

The yield on the 7.84 percent sol-denominated bonds due in 2020 fell one basis point, or 0.01 percentage point, to 4.22 percent, pushing the weekly decline to four basis points. The record low was 4.19 percent on Sept. 21.

Peru’s central bank is seeking to curb credit growth and slow the appreciation of the sol, which last month touched a 15-year high against the dollar as investors pour into Latin America’s fastest-growing economy. The monetary authority raised reserve requirements for a third straight month in October and its research director Adrian Armas has said it may increase them again.

Local investors bought the 7.84 percent bonds today “on the expectation that there will be more demand from offshore,” said Alberto Jabiles, a fixed-income trader at BBVA Banco Continental in Lima. “Offshore investors keep coming to Peru because of the exchange rate and low interest rates in the rest of the world. Peru is a solid credit that offers carry. The outlook for next year is good and there’s no reason for the exchange rate to depreciate.”

The sol appreciated 0.7 percent this week to 2.5890 per U.S. dollar, according to Deutsche Bank AG’s local unit. The currency was little changed today.

The central bank today bought $20 million in the spot currency market at an average rate of 2.5895 soles per dollar, it said on its website.

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