The banking behemoth claims El Salvadoran notes have been unjustly punished in the previous months despite tighter liquidity, and the government is still far from defaulting on its obligations.
Morgan Stanley dubbed El Salvador-issued Eurobonds at their present price levels a purchasing opportunity mainly owing to the recent crypto crisis that has devastated the value of the country’s bitcoin holdings. The investment bank claimed that despite its tremendous debt, the government could continue “muddl[ing] through” for at least a year without failing to satisfy its bond payments.
Amidst arguably one of the most significant bear markets in crypto history, the first nation that embraced Bitcoin as its legal cash has fallen deep in a financial crisis. El Salvador’s financial situation is seen in the decreased bond prices, partially related to its exposure to the principal cryptocurrency. For background – the country’s 2027 bond has plunged from 32 cents on the dollar to 28 cents this year, striking a record low of 26.3 cents last Friday, observed Bloomberg.
El Salvador’s president Nayib Bukele is under pressure to come up with $800 million for a January 2023 bond payment. With benchmark bonds maturing in 2032 and yielding 24 percent, the country’s bond prices have plummeted, with other nations in trouble, such as Ukraine, Argentina, etc.
Simon Waever – the global head of emerging-market sovereign credit strategy at Morgan Stanley – takes a somewhat positive assessment of El Salvador’s economic potential, stating that the nation is not expected to drift towards default under tighter global liquidity. By his estimations, the 2027 bond should be valued at 43.7 cents on the dollar instead.
“Markets are pricing in a high possibility of the autarky scenario in which El Salvador defaults, but there is no restructuring.”
The generally bad mood shed on the country’s prospects is purportedly connected to Bukele’s eruptive policy shift, from recognising Bitcoin as legal cash to announcing the introduction of BTC bonds. Despite the asset’s recent increase, its value has dropped over 50 percent since El Salvador’s initial purchase in September last year.
The IMF was incredibly dissatisfied with Bukele’s pro-crypto attitude, asking the government to reverse its adoption and saying that the decision posed severe threats to financial stability.
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