Peru’s Sovereign Bonds Attract International Investors Amidst Political Calm
After years of political turmoil, Peru has finally found itself in a period of relative calm, and international investors are taking notice. The country’s sovereign bond market has seen a significant influx of foreign investors, with 39% of the market now held by international entities – the highest level among emerging market countries.
Moody’s has given Peru a moderately stable Baa1 credit rating, reflecting the increasingly positive sentiment surrounding the country’s fixed income outlook. This is a marked shift from the wariness that pervaded the market during the years of political unrest.
Peru’s economy boasts several standout characteristics, including a low debt-to-GDP ratio of 33%, which is among the lowest in Latin America. The country’s stable currency, the Sol, has also contributed to its attractiveness to investors. The Central Reserve Bank of Peru has taken steps to support the economy, lowering interest rates to 5.25% in September.
The yield curve in Peru is also steep, with high real yields and a stark contrast to the inverted yield curves seen in many other countries. This has made local Peruvian bonds an attractive option for investors, with a 2-year Soberano currently yielding 4.661% and the 10-year Soberano yielding 6.428%.
Ironically, Peru’s political dysfunction has actually contributed to its fiscal health, with the lack of a strong executive leading to better fixed income outcomes. The country’s central bank has been viewed as a stabilizing force, normalizing policy in line with domestic conditions.
While the equity market in Peru is less clear, with the MSCI Peru Index rallying 24.8% in 2024, the country’s reliance on commodities such as copper, silver, and zinc makes it vulnerable to external factors. However, with copper prices surging 24.5% year to date, Peru’s mining sector is expected to continue to drive growth in the short term.
Despite the challenges, Peru’s fixed income market remains an attractive option for international investors, with its high-quality market and stable central bank providing a conducive environment for investment.
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