Peru’s currency hits record low, bonds fall into Ministry of Finance vacuum

The Crypto Daily - Movers and Shakers - May 5, 2021

Investors are wary about Peru’s prospects under Castillo, who last month won a razor-thin election with a self-described Marxist-Leninist party. Peru’s currency is “likely to stay under pressure as the political process plays out,” said Citi analysts in a note. “We expect the central bank to intervene to smooth volatility.” Bellido’s appointment on Thursday underlined the influence that the far-left Free Peru party will have in Castillo’s administration, which began on Wednesday and is set to last until 2026. read more

The local sol currency lost 3.6% to the greenback to set a record closing low of 4.068 per U.S. dollar. The benchmark stock index dropped almost 6% at its session low and is on track to close at its lowest since November. On Wall Street, stocks of Peru based financials Credicorp and Intercorp Financial Services fell near 17% and 10% respectively, while miner Buenaventura dropped over 6%.

The decline was the largest for any day in over seven years despite $293 million sold by the central bank to protect the sol. The 2060 bond issue was down 2 cents on the dollar to trade at 88.3 cents, the 2032 bond fell 1 cent and its century bond was down 2.8 cents, Refinitiv data showed.

Castillo’s failure to appoint a finance minister exacerbated investor concerns, JPMorgan said in a note. “The extremely atypical political situation reinforces our call for a persistent scenario characterized by political, institutional, and economic uncertainty,” the bank’s Diego W. Pereira wrote. Spreads of Peru’s hard currency bonds over safe-haven U.S. Treasuries on the JPMorgan EMBI Global Diversified index (.JPMEGDPERR) have risen nearly 30 basis points in the last week to 199 bps – the widest gap since May 2020.

“We think there is going to be volatility, but I don’t think panic has set in and we are at the stage where (investors) need to exit the country,” Lad said. “At the same time, we haven’t reached the stage where we see opportunities.” “It’s probably too early to make conclusions, but the opening gambit isn’t a positive one,” said Sailesh Lad at Axa Investment Managers, adding that the asset manager will maintain its small exposure to the debt of the Peruvian sovereign and corporates.

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