Peru Borrowing Costs Rise on U.S. Budget Impasse; Sol Advances

Peru’s benchmark borrowing costs in dollars rose the most in six weeks as stalled U.S. budget talks threatened growth in the world’s largest economy, damping demand for higher-yielding, emerging-market assets.

The extra yield investors demand to own Peruvian government bonds instead of U.S. Treasuries climbed five basis points, or 0.05 percentage point, to 115 basis points at 2:24 p.m. in New York, according to JPMorgan Chase & Co. The increase is the steepest since Nov. 7.

The U.S., Peru’s biggest trading partner after China, faces more than $600 billion in automatic spending cuts and tax increases known as the fiscal cliff, scheduled to take effect Jan. 1 if Congress can’t agree on a budget. Global stocks slumped after House Republican leaders canceled a scheduled vote on a plan to allow higher tax rates for annual incomes above $1 million.

“Markets are very negative” because of concern political leaders “won’t reach an agreement to avoid the fiscal cliff,” Antonio Diaz, a trader at Banco Internacional del Peru in Lima, said in a phone interview.

The sol appreciated 0.1 percent to 2.5580 per U.S. dollar at today’s close, according to Deutsche Bank AG’s local unit. The central bank bought $40 million in the spot market and said on its website it paid an average 2.5620 soles per dollar.

The yield on the nation’s 7.35 percent dollar bond due in July 2025 dropped one basis point, or 0.01 percentage point, to 3.03 percent, according to data compiled by Bloomberg. The price rose 0.15 cent to 144.90 cents per dollar.

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