As the El Salvadorian President’s bet on Bitcoin fails, Morgan Stanley is prepared to buy El Salvador’s battered bonds which are some of the worst-performing notes this year.
The El Salvadorian Government’s $7.7 billion in Eurobonds have been “overly punished” by the market despite the country having better metrics than other distressed peers, Simon Waever, the Global Head of Emerging-market Sovereign Credit Strategy at Morgan Stanley, wrote in a note yesterday.
The country’s 2027 bond has slumped 32 cents on the dollar to 28 cents this year, touching a record low of 26.3 cents.
Even if the nation is headed for default, according to Waever’s assessment, the debt should trade on average at 43.7 cents on the dollar. However, he acknowledges that is unlikely to happen anytime soon as global liquidity tightens. The estimates do not consider a January 2023 payment of $800 million valued substantially higher at 65 cents on the dollar.
Waever argued that the nation could manage without making late payments for at least another year. It has smaller maturities coming due than other distressed peers like Argentina, Egypt, and Ukraine, and it runs a primary surplus.
The market pessimism toward El Salvador has often been attributed to President Nayib Bukele’s unpredictable policies, from firing some of the country’s top judges to making Bitcoin legal tender and announcing a failed dollar-bond sale linked to the token.
The price of Bitcoin has dropped by about a third since peaking in November last year, resulting in losses of around 48 percent on Bukele’s Bitcoin bet that began in September. According to statistics gathered by Bloomberg, approximately $56 million worth of Bitcoin is currently held by the country.