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Morgan Stanley says it’s time to buy El Salvador bonds

The banking giant said El Salvador bonds have been excessively sanctioned in recent months amid tight liquidity, and the government is still far from defaulting.

Morgan Stanley calls Eurobonds issued by El Salvador at current prices a buying opportunity in part due to the recent crypto crash that has reduced the value of the country’s bitcoin holdings. The investment bank said that despite the debt piled up, the government could continue to “freeze” for at least a year without being able to meet its bond payments.

Bad situations are evaluated

Amid potentially one of the worst bear markets in crypto history, the first country to use Bitcoin as its legal tender has fallen deep into financial distress. El Salvador’s financial crisis is reflected in a sharp drop in bond prices, partly attributed to the country’s exposure to the main cryptocurrency. For context – the country’s 2027 bonds fell 32 cents against the dollar to 28 cents this year, hitting a record low of 26.3 cents last Friday, Bloomberg notes.

The immediate stress of El Salvador President Nayib Bukele is to come up with $800 million in bond payments due in January 2023. With the benchmark bond maturing in 2032 yielding 24%, the bond’s price Its shares fell according to other struggling economies like Ukraine, Argentina, etc.

Simon Waever, global head of sovereign credit strategy for emerging markets at Morgan Stanley, is relatively bullish on El Salvador’s economic outlook, saying the country is unlikely to be able to afford it. towards default in the context of tight global liquidity. By his estimate, the 2027 bond should be valued at 43.7 cents against the dollar.

“The markets are clearly pricing in a high probability of an automatic scenario in which El Salvador defaults, but there is no restructuring.”

The overall negative sentiment about the country’s prospects is believed to be related to Bukele’s sudden policy change, from the adoption of Bitcoin as a legal tender to the announcement of the launch of BTC bonds. Despite the property’s recent rise, its value has fallen by more than 50% since El Salvador made its first purchase last September.

The IMF was particularly unhappy with Bukele’s pro-crypto stance, urging the country to return to adoption and arguing that the move is posing significant risks to financial stability.

Bitcoin Bonds Are Constantly Delayed

When the government of El Salvador announced its plan to issue $1 billion worth of Bitcoin-backed bonds last November, it was intended to bring some cash to its struggling economy. Proceeds from the bond will be directed towards supporting the heavily advertised “Bitcoin city” as previously reported by CryptoPotato.

Given the current bear market conditions, the government has postponed the launch several times over the past months as Bitcoin’s high volatility is likely to exacerbate the nation’s debt problem.