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El Salvador’s decision to adopt Bitcoin has ruffled the feathers of bond investors, with yields rising as investors report uncertainty for the emerging economy.
A September 8 report released by Bloomberg notes that the Salvadoran bond yield curve has recently inverted, meaning short-term bonds are now earning more than what is owed to instruments. He stated:
“This is generally seen as a bad sign, because it means investors view short-term debt as riskier, and most yield curves will tilt upward given the inherent uncertainty in pricing things.” longer term. “
Ben Emons of Medley Global Advisors pointed out that El Salvador bonds lost ground “on the first day of its new Bitcoin law”, describing market action as “an unfortunate sign that widespread use of Bitcoin may have major implications “for the emerging country.
Emons doesn’t appear to be alone in his assessment, with Bloomberg data showing El Salvador’s bonds began to reverse in June – the same month in which the country’s parliament passed the president’s controversial Bitcoin law. Nayib Bukele acknowledging BTC as legal tender.
Related: El Salvador’s Largest Bank Partners With Flexa For Bitcoin Payments
However, El Salvador’s decision to recognize Bitcoin as legal tender is not the only force to exert downward pressure on the country’s bond market.
Other experts pointed out that Bukele’s sudden ousting from the country’s constitutional court in May was a major source of negative sentiment regarding El Salvador’s economic outlook, with Bukele sacking the country’s attorney general and top judges.
Since May, the spread between Salvadoran government bonds and comparable US Treasuries had widened by 77% as of August 12. Bukele’s inability to strike a deal with the International Monetary Fund has also affected the outlook for the Salvadoran bond market.
As El Salvador’s Bitcoin law went into effect on September 7, the rollout of the government-issued “Chivo” digital wallet sparked numerous complaints of technical issues from citizens.
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