The ongoing acceptance of bitcoin in El Salvador appears to be producing plenty of problems. But, for the time being, it appears that Bond investors have the upper hand. Yields have recently risen as investors become more concerned about the economy’s prospects.
According to Bloomberg, the yield curve for bonds has inverted, indicating that short-term bonds now have greater yields than long-term bond choices. According to the research, this is a bad indicator for the bond market. It demonstrates that investors regard these bonds as riskier than long-term bonds. As a result of the uncertainty in longer-term pricing, the yield curve will rise.
The First Day of Bitcoin Law, and Bonds Fall
El Salvador’s bonds lost momentum on the first day of the law, according to Ben Emmons of Medley Global Advisors. As a result of this shift, Emmons stated that the market action illustrates that utilizing Bitcoin in the country may result in unanticipated consequences.
However, Emmons is not alone in his assessment. According to Bloomberg data, the bond market began to invert a few months ago.
The Bitcoin Law was passed by the parliament in June. President Nayib Bukele has introduced a contentious law to make Bitcoin an official tender in the country.
Is the New Law to Blame for the Bearish Trend?
Many market observers believe that the Bitcoin law is not only to blame for the current bearish trend in El Salvador bonds. Many causes have contributed to the current level of stress. Many others have stated that Bukele’s removal from the constitutional tribunal in May generated a lot of negative reactions.
Many people believe that his economic vision is uninspiring. On top of that, the President fired El Salvador’s attorney general, as well as a number of other senior judges. As a result, many people feel that his interest in Bitcoin has triggered a bearish trend in the bond market.
The disparity between the country’s bonds and US Treasuries has been widening for several months. It has reached 77 percent as of August 12. Another notable omission is the President’s failure to sign an agreement with the IMF. This failure has also influenced investors’ perceptions of the bond market.
According to another research, many El Salvadorans are dissatisfied with the technological challenges surrounding the government’s “Chivo” digital wallet. This is extremely disheartening, given that the Bitcoin law only went into effect a few days ago.
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