Morgan Stanley will purchase El Salvador’s damaged bonds following Bitcoin bet

El Salvador’s president Nayib Bukele’s bet on Bitcoin (BTC) seems to be backfiring in light of the recent cryptocurrency market meltdown, prompting the American investment bank and financial services provider Morgan Stanley to urge its clients to acquire the country’s low-performing bonds.

According to a note by Simon Weaver, global head of emerging-market sovereign strategy at Morgan Stanley (NYSE: MS), the market has “over punished” the $7.7 billion in Eurobonds held by the Salvadoran government, despite the nation having better metrics than other troubled peers, Maria Elena Vizcaino of Bloomberg reported on July 19.

impacts of weak market 

The price of Bitcoin has decreased by about a third of its value from its all-time high in November 2021, resulting in losses of around 48 percent for the Central American country, which presently possesses approximately $56 million in Bitcoin.

El Salvador’s 2027 bond has declined 32 cents on the dollar to 28 cents in 2022, reaching a record low of 26.3 cents on July 15.

Even if the country is on the route to default, Weaver believes that the average value of its debt should be 43.7 cents per dollar. However, he acknowledges that the likelihood of reaching this level shortly is low due to the tightening of global liquidity.

According to the research, market pessimism is partially attributable to President Bukele’s eccentric moves, such as declaring Bitcoin legal cash, launching a failed dollar-bond sale tied to the digital asset, and removing some of the country’s most prominent judges.

Restructuring alternatives

Waever is likewise of the opinion that the International Monetary Fund (IMF) should have a role in any prospective restructuring:

El Salvador’s finance minister, Alejandro Zelaya, has indicated that a Bitcoin-backed bond will be issued in late March.

Finbold said that Bukele has been advertising the plan since November 2021, allocating half of the $1 billion gathered for constructing electricity and Bitcoin mining infrastructure and the other half for expanding El Salvador’s crypto assets.

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