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Bitcoin-friendly El Salvador sees bond returns soar to 70% in 2023

El Salvador, which adopted Bitcoin as legal tender in 2021, has seen its dollar bond outperform the majority of the emerging markets with a 70% return in 2023. The massive rally of the bond has now drawn interest from several institutional giants like JP Morgan, Eaton Vance and PGIM Fixed, prompting President Nayib Bukele to say, “I told you so.”

Apart from the institutional giants, the likes of Lord Abbett & Co LLC, Neuberger Berman Group LLC and UBS Group AG have also added debt security since April, reported Bloomberg.

The growing demand for El Salvador’s debt security in 2023 is quite a contrast to its performance a couple of years ago when it first adopted Bitcoin as a legal tender. The BTC adoption created uncertainty among investors who bet against the country’s bonds, with several financial agencies casting a shadow of doubt on the country’s financial future.

In Feb 2022, the American credit rating industry Fitch, lowered the country’s long-term Issuer Default Rating from B- to CCC, citing policy uncertainty and the Bitcoin adoption along with an $800 million debt payment due for January 2023.

Related: El Salvador’s Bitcoin strategy evolved with the bear market in 2022

El Salvador paid $800 million in debt in full within the due maturing time at the start of this year, raising confidence in the country’s bonds again. President Nayib Bukele at the time noted that they have proven every finance pundit wrong, who doubted whether they would be able to pay their debts in time after Bitcoin adoption.

This rise in the confidence of investors is visible from the bond’s performance throughout 2023. During the same time frame, El Salvador also passed a landmark crypto bill, paving the way for a Bitcoin-backed Volcano bond.

El Salvador bond performance 2018-2023. Source: Bloomberg

El Salvador and its President Bukele have been at the receiving end of critics ever since they first adopted Bitcoin in September 2021 as legal tender along with the United States dollar. Financial pundits predicted that the BTC adoption will further strain Salvador’s financial conditions. However, within two years the debt security of the state has become a hotcake among institutional giants, the same who once advised against its buying.

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