Peru Yields Fall Most in Seven Months After Auction; Sol Drops

Peru’s bonds rose, pushing yields down the most in seven months, on demand from local investors who didn’t participate in the government’s biggest issuance of local debt since 2010.

The yield on the 5.2 percent sol-denominated bond due in September 2023 fell 13 basis points, or 0.13 percentage point, to 4.18 percent at 3:08 p.m. in Lima, the steepest decline since July 13, according to data compiled by Bloomberg. The price climbed 1.13 centimos to 108.44 centimos per sol.

Some investors decided to buy the notes today after abstaining from yesterday’s auction because they thought yields being offered were too low, said Walther Benavides, a trader at BBVA Banco Continental in Lima.

“They don’t want to be left out of a possible rally,” Benavides said in an e-mailed response to questions. “No one expects higher rates this year. GDP and inflation are slowing. Stimulus in the U.S. and the euro zone will continue for a considerable amount of time. That means low rates for Latin America as well.”

Peru issued 1.9 billion soles ($734 million) of sol-denominated bonds yesterday to finance the prepayment of bank loans. Bonds maturing in 2023 were issued at a yield of 4.2 percent while the securities maturing in February 2042 were sold to yield 5.14 percent, the Finance Ministry said.

The 1.18 billion soles of bonds due in 2023 issued yesterday may attract foreign investors seeking local-currency bonds that are being actively traded in the secondary market, according to Diego Llona, a trader at Banco Santander Peru SA.

Before yesterday, the government had issued 887 million soles of the bonds maturing in 2023, the smallest outstanding debt after its September 2013 bond.

Prepaid Loans

Peru will prepay $1.7 billion of loans from the Inter-American Development Bank and World Bank to reduce its dollar debt, the ministry said Feb. 26. The operations are part of a plan to remove $4 billion of U.S. currency from the foreign-exchange market to slow sol appreciation, Finance Minister Miguel Castilla said Feb. 18.

The sol fell 0.3 percent to 2.5888 per U.S. dollar at today’s close, extending its drop in February to 0.5 percent, according to data compiled by Bloomberg. The currency weakened after the central bank raised lenders’ dollar reserve requirements yesterday for the third time this year.

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