Peruvian Bond Yields Decline on Speculation Sol Rally to Resume

Peruvian sol-denominated bonds rose, pushing down yields the most in four days, as investors bought short-dated notes that they expect to benefit from appreciation in the local currency.

The yield on the nation’s 9.91 percent debt due May 2015 decreased three basis points, or 0.03 percentage point, to a record 1.51 percent at 3:24 p.m. in Lima. The price climbed 0.03 centimo to 118.22 centimos per sol.

Dollar inflows have risen amid increased demand for the Andean nation’s bonds and as Peruvian companies seek financing overseas, prompting authorities to bolster efforts to stem appreciation in the sol. The local currency, which appreciated 5.4 percent in 2012, has dropped 0.8 percent this year after the central bank stepped up its purchases of greenbacks and increased banks’ reserve requirements, making it cheaper for dollar-based investors to buy sol bonds.

“The currency’s long-term appreciatory trend is expected to resume shortly,” said Walther Benavides, a bond trader at Banco Continental SA in Lima. “If it’s a bet on the sol, the most logical thing to do is buy short-dated bonds with little interest rate risk.”

Non-resident investors accounted for 88 percent of all holdings of the 2015 notes as of Dec. 31, compared with 52 percent a year earlier, according to the Finance Ministry.

The sol gained 0.4 percent to 2.5707 per U.S. dollar at today’s close, a two-week high, according to prices compiled by Bloomberg. Its 4.4 percent appreciation in the last 12 months is the biggest among Latin America’s six most-traded currencies.

The central bank said on its website it bought $60 million in the currency market today, taking its purchases this year to $2.7 billion.

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