Peru’s 100-year bond sale shows markets can defy political chaos2 min read . Updated: 24 Nov 2020, 04:55 PM IST
- The government sold $4 billion of notes Monday, including securities coming due in 100 years
- Revenue from the sale will help Peru combat one of the world’s worst Covid-19 mortality rates and the related financial fallout
Peru, a country that’s on its third president this month, convinced investors that its strong financial institutions would carry the day.
The government sold $4 billion of notes Monday, including securities coming due in 100 years. The bond sale comes just days after nationwide protests in the wake of Martin Vizcarra’s impeachment, which ultimately sent the sol to a record low and led to the resignation of his successor Manuel Merino.
“Independent of the political events, there’s a confidence that investors have in the financial institutions of our country," Jose Olivares, the head of public debt at the Finance Ministry, said in an interview. “When they talk about Peru bonds, they say it’s a risk-free asset."
Investors are looking past the political noise as the combination of low global interest rates, a weaker dollar and large fiscal stimulus packages increase the appeal of some developing-nation assets. Peru’s sale included 12-year bonds priced at 100 basis points over US Treasuries as well as 40-year notes and 100-year notes with spreads of 125 and 170 respectively, said a person familiar with the matter, who requested anonymity as the details are private.
That marks the lowest-yielding century bonds ever sold by an emerging-market government. Argentina, Mexico and Ireland have also sold 100-year notes recently. Argentina’s, issued in 2017, were restructured this year.
Olivares said his team saw a “window of opportunity" when the nation’s assets rebounded last week after congress voted in centrist lawmaker Francisco Sagasti to finish out the presidential term that runs until next July. He said demand for the three-part bond sales was $15 billion.
“Peru has a strong external position and a low level of indebtedness," said Shamaila Khan, the director of emerging-market debt at AllianceBernstein in New York. “We expect the country to be a solid investment-grade credit despite the political volatility."
It remains one of Latin America’s safest countries, with a sovereign spread of 149 basis points over US Treasuries, according to JPMorgan Chase & Co.
Revenue from the sale will help Peru combat one of the world’s worst Covid-19 mortality rates and the related financial fallout. The government sold $3 billion of debt in April to support what was then one of Latin America’s most ambitious stimulus packages. Olivares said the government plans additional bond sales next year, particularly in local currency.
Peru itself has seen eight external defaults and restructurings since its independence in 1821, according to the book “This Time Is Different: Eight Centuries of Financial Folly."
Banco Bilbao Vizcaya Argentaria, Citigroup Inc., Goldman Sachs Group Inc., Itau BBA and Morgan Stanley helped manage the sale.
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