Peru Bonds Rally After Moody’s Upgrades Credit Rating

Peruvian bonds rose the most in the Americas after Moody’s Investors Service raised the nation’s credit rating by two levels, citing falling debt and reduced dependence on metal exports.

The price of the government’s notes due 2025 jumped 0.93 cent to 132.68 cents per dollar at 2:02 p.m. in Lima, according to data compiled by Bloomberg. The yield fell nine basis points, or 0.09 percentage point, to 3.71 percent.

Peru’s rating was increased to A3, the seventh-highest investment grade and in line with Mexico, while three steps below Chile. Moody’s said yesterday the reason for the upgrade was the improvement in the government’s balance sheet as well as expectations for faster growth and the impact of initiatives to bolster competitiveness.

The two-step rating increase “was 100 percent unexpected” and will probably bolster overseas demand for Peru’s debt, Walther Benavides, head of fixed-income trading at BBVA Banco Continental in Lima, said an e-mailed response to questions.

The cost to insure Peru’s debt against default for five years with credit swaps dropped three basis points, or 0.03 percentage point, to 81 basis points, according to data compiled by Bloomberg. The sol rose 0.5 percent to 2.777 per U.S. dollar.

President Ollanta Humala on June 11 announced legislation to forgive some back taxes, accelerate public works and boost investment in mining, hydrocarbons and telecommunications.

Castilla Outlook

The measures, which are being debated in Congress, will sustain economic growth in the medium term, Finance Minister Miguel Castilla said in an e-mailed statement yesterday.

“Diversification of tax revenues has helped underpin fiscal health,” Moody’s analysts led by Jaime Reusche said in a statement. The government’s efforts “will enhance potential output and private-sector investment, while they also address concerns in the business community about red tape that have negatively affected economic sentiment.”

Peru’s economy will probably expand by about 5 percent this year before growing about 6 percent in 2015 and 2016, according to the ratings company. Gross domestic product rose an average 6.3 percent in the last decade, the fastest in South America.

The Andean nation posted a fiscal surplus last year even as economic growth slowed to 5.8 percent and prices for commodity exports slumped.

“The unusual two-notch increase in the sovereign rating is a signal of the rating agency’s appreciation of the country’s macro fundamentals,” Tiago Severo, an economist at Goldman Sachs Group Inc., wrote in an e-mailed note to clients.

The ratings company also said that the average maturity of Peru’s government debt will probably remain high, helping to ensure the government’s financing needs are “relatively low.”

Moody’s raised Peru one step to Baa2, the second-lowest investment grade, in 2012. Standard & Poor’s and Fitch Ratings took the country to BBB+, a level higher, last year.