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Peru Sol Bonds Fall as Central Bank Acts to Slow Currency Gains

Peru’s sol-denominated bonds fell, pushing up yields for the first time in two weeks, as central bank efforts to slow appreciation in the local currency reduced the debt’s allure.

The yield on the nation’s 8.6 percent bond due August 2017 climbed two basis points, or 0.02 percentage point, to 3.14 percent at 1:48 p.m. in Lima, according to prices compiled by Bloomberg. That’s the first increase since Nov. 26. The price fell 0.14 centimo to 123.4 centimos per sol.

The monetary authority has stepped up dollar purchases in the spot market as the sol trades at a 16-year high. It bought $60 million today after buying $60 million on Dec. 7, the most in six weeks, according to data posted on its website. The bank has purchased a record $13 billion this year as foreign direct investment spurs growth.

“Fear of greater intervention” has probably damped demand for the country’s bonds, said Kenneth Lam, a strategist at Citigroup Global Markets in New York. “The room for short-term appreciation is becoming limited.”

The sol was little changed at 2.5715 per U.S. dollar at today’s close, according to prices compiled by Bloomberg. The currency touched 2.5706 earlier today, which is the strongest level since November 1996, data from Peru’s financial regulator show.

The central bank will keep buying dollars in the spot market every day while varying the amount and price of its purchases to make it harder for speculators to predict the currency’s moves, research director Adrian Armas said during a Dec. 7 conference call with reporters.

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