(Bloomberg) — El Salvador’s sovereign debt jumped Monday after President Nayib Bukele said the 2025 budget wouldn’t involve issuing new debt, signaling his plans for fiscal austerity, a key step in unlocking a long-awaited program with the International Monetary Fund.
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Dollar notes rose across the curve, with those due in 2035 gaining 2.2 cents on the dollar to 80.5 cents, the highest since 2021, according to indicative pricing data compiled by Bloomberg. The yield for the bond dropped over 40 basis points to 10.7%.
Bukele pledged on Sunday to present next year’s budget by Sept. 30. The announcement comes after El Salvador’s debt sputtered this year on concern over the government’s ability to meet payments, as Bukele failed to deliver a long-promised deal with the IMF. The multilateral lender has cited a lack of fiscal consolidation and the country’s adoption of Bitcoin as an official currency for the delay.
“There’s been some fiscal and economic deterioration over the last year, but the promise suggests that on the fiscal side at least they’ll move in the right direction,” said Carlos de Sousa, an emerging market debt portfolio manager at Vontobel Asset Management. “It’s a vague, but a little bit more-explicit promise of zero fiscal deficit.”
Bank of America also upgraded the country’s debt to overweight from market weight after an investor trip to the Central American nation, favoring notes due in 2035.
“We perceive that the government and the IMF are the closest that they have ever been to reaching a deal, following years of negotiations,” the bank’s analysts Lucas Martin, Alex Muller and Jane Brauer wrote in a Monday note.
Even the dispute over Bitcoin — which has long been a major impediment to a deal — may be resolved given the “softer tone” Bukele has taken recently, according to Nathalie Marshik, an emerging markets sovereign analyst at HSBC Securities.
Still, an accord with the IMF is not yet a done-deal.
Arif Joshi, who helps oversee about $9 billion as co-head of emerging market debt at Lazard Asset Management, said he’s been waiting for an agreement for two years. “I want to see it materialize.”
Many other investors will also wait for more evidence of how the government will trim the fiscal deficit, which stood at 2.5% of gross domestic product in the 12 months through July. Others remain concerned over bitcoin.
“The signal of a balanced budget is helpful, but the biggest obstacle to a fund program remains whether an agreement can be reached on bitcoin as legal tender,” said Jared Lou, portfolio manager at William Blair.
(Updates with yields in the second paragraphs and adds additional investor comment in third-to-last paragraph.)
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