Peruvian bonds declined, pushing yields on benchmark securities to a two-week high, amid mounting speculation that intervention to stem gains in the sol will discourage foreign investors from buying local debt.
The yield on the government’s 7.84 percent bonds due in 2020 rose six basis points, or 0.06 percentage point, to 3.85 percent, the highest since Jan. 9. The sol depreciated less than 0.1 percent to 2.56 per U.S. dollar, its weakest closing price this year, according to data compiled by Bloomberg.
Peru may buy back a record amount of international bonds next month as it steps up efforts to stem the biggest rally among major Latin American currencies in the past year, Finance Minister Miguel Castilla said in an interview in Davos, Switzerland. The central bank has stepped up dollar purchases and raised the foreign portfolio limit for pension funds to allow them to invest more abroad.
“We have seen sales from local investors anticipating that the sol will halt its appreciation in the very short term and foreign investors have to sell some of their positions,” said Diego Alvarez, a trader at Banco Internacional del Peru. “The central bank has decided to weaken the appreciation of the sol and the Finance Ministry is supporting those efforts, but we don’t expect it to change the tendency.”
The sol appreciated 5.1 percent in the last 12 months, the most among emerging-market currencies tracked by Bloomberg, as investors moved money into Latin America’s fastest-growing economy. The central bank bought a record $13.9 billion last year and raised reserve requirements five times.
The monetary authority bought $10 million today at an average 2.561 soles per U.S. dollar, according to its website.
Peru doesn’t need to use currency controls to manage dollar inflows into the economy, central bank President Julio Velarde said Jan. 25. He didn’t rule out reducing the country’s benchmark lending rate to close the gap with record low international borrowing costs.