Morgan Stanley described El Salvador’s Eurobonds at current prices as a buying opportunity, partly because of the recent crypto crash which has lowered the value of its bitcoin holdings. The investment bank said that despite its massive debt, the government could “muddle through” for at most one year without defaulting on its bond payments.
Bad Scenarios Are Priced-in
The first country to accept Bitcoin as its legal tender is in deep financial trouble despite potentially one of the most bearish crypto markets ever recorded. The plummeting bond prices in El Salvador are a result of its exposure to the main cryptocurrency. Bloomberg noted that El Salvador’s 2027 bond fell 32 cents to 28 cents against the dollar, reaching a record low 26.3 cents last Friday.
El Salvador President Nayib Bukele faces immediate stress as he must raise $800 million to pay a bond payment due January 2023. Its benchmark bonds due 2032 yielding 24% have caused its bond prices to fall in line with other economically distressed countries like Argentina, Ukraine, and Argentine.
Simon Waever, the global head for emerging-market sovereign credit strategy at Morgan Stanley, has a fairly optimistic view about El Salvador’s economy. He believes that El Salvador is unlikely to default in a world of tightening liquidity. According to his calculations, the 2027 bond should have a price of 43.7 cents per dollar.
“Markets clearly price in the high probability of El Salvador defaulting in an autarky scenario, but there isn’t any restructuring.”
According to reports, the negative outlook for the country is due to Bukele’s abrupt change of policies. These include adopting Bitcoin as legal tender and announcing the launch BTC bonds. Despite its recent rise in value, it has fallen more than 50% since El Salvador purchased the asset last September.
Bukele’s procrypto stance was particularly unpopular with the IMF, who urged the country to rescind its adoption and said that it was posing significant risks to financial stability.
Multiplely Delayed Bitcoin Bonds
The government of El Salvador announced plans to issue $1 billion of Bitcoin-backed bonds last November. This was to raise funds for the country’s struggling economy. According to CryptoPotato, the proceeds from bonds will go towards funding the highly-anticipated “Bitcoin City.”
The government delayed the launch of Bitcoin several times in the past months due to the bearish market conditions. This is because Bitcoin’s volatility could lead to an increase in the country’s debt problem.
Marla Brooks – Financial Analysis
My name is Marla Brooks, and I am the mainstream behind the”observednews.com” for the powerful and most delicate insights into the latest activities in the financial analysis category. I started my journey as an independent financial consultant. I had approximately nine years of experience in this field. I am free soul so; my passion for exploring the world has taken me to the nations across the globe and given me the chance to report for a portion of the best news associations. Currently, I am a full-time editor as experienced in finance and started to use my abilities.