Bitcoin lags behind El Salvador dollar bonds

Losses in the illiquid frontier market debt market came even as bitcoin gained momentum and traded above $30,000 after seven weeks of losses. According to his Twitter announcement, Bukele has spent nearly $105 million buying the token since it became legal tender in September. The government does not publish data about your bitcoin holdings.

“Bitcoin is more substance than form, with no real contribution to external or investment flows,” said Siobhan Morden, head of fixed income strategy for Latin America at Amherst Pierpont.

Morden pointed to a lack of medium-term financing plans for the sovereign, which has struggled to sell $1 billion in bitcoin-linked volcanic bonds for more than five months.

The fact that longer-term bonds are trading at an even higher level of risk indicates that investors are betting on the worst-case scenario of an upcoming default combined with low-recovery stocks. Moderna expects the government to mess around for now, but a physical rally in the country’s securities requires financial discipline or a reward for its big bets on bitcoin, and neither scenario is likely.

El Salvador will have to pay $329 million in interest to bondholders this year, with July being the highest paying month. According to the central bank, the country had reserves of $3.4 billion in April. The nation was also in talks with the International Monetary Fund for an expanded funding instrument, but talks stalled after Bukele adopted the cryptocurrency as legal tender.

This year, according to the Bloomberg index, the country’s sovereign debt is among the worst in the world, surpassing only the bonds of Ukraine and Belarus. According to data from JPMorgan, the additional yield required by money managers to hold El Salvador notes on the US Treasury exceeded 26 percent, well above the risk threshold.