El Salvador’s Bond Market Reacted Negatively to Bitcoin Law

As reported by Bloomberg, El Salvador’s bond yield curve has reversed since the Bitcoin adoption law came into effect. This means that bonds with short-term maturities now generate more returns than are due on instruments.

“This is generally considered a bad sign as it means that investors view short-term debt as a riskier one, and most of the yield curves will slope upward given the inherent long-term pricing uncertainty,” Bloomberg wrote.

Ben Emons of Medley Global Advisors stressed that El Salvador’s bonds lost a significant share on the first day of the new Bitcoin law.

In his opinion, the widespread use of Bitcoins could have serious economic consequences for a developing country.

Other experts believe that it is not only the adoption of the Bitcoin law that devalues ​​the country’s bonds. In their opinion, the overthrow of Bukele from the country’s constitutional tribunal in May 2021 also had a negative effect.

Thereafter, the spread between El Salvador’s government bonds and comparable US Treasuries widened to 77% as of August 12. Bukele’s failure to strike a deal with the International Monetary Fund has also impacted the outlook for El Salvador’s bond market.

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