Bloomberg News

Peru Bond Yields Rise to One-Week High on Global Growth Concern

October 25, 2011

Oct. 25 (Bloomberg) -- Peruvian bonds fell, pushing up yields to their highest in a week, as the government offered securities in the domestic market and concern global growth may stall eroded demand for higher-yielding, emerging market assets.

The yield on the nation’s benchmark 7.84 percent sol- denominated bond due August 2020 rose two basis points, or 0.02 percentage point, to 5.75 percent, according to prices compiled by Bloomberg. The bond’s price fell 0.12 centimo to 114.23 centimos per sol.

U.S. stocks fell after consumer confidence unexpectedly slumped in October to the lowest level since March 2009, when the U.S. economy was in a recession. European equities dropped after a meeting of finance ministers was canceled, fueling concern that leaders may struggle to resolve the region’s debt crisis at a summit tomorrow.

“The global environment has deteriorated, and the risk premium shouldn’t be as low as it is” on Peruvian bonds, said Roberto Melzi, a Latin America strategist at Barclays Capital Inc. in New York. “The world isn’t as safe as the local curve is apparently pricing. It’s a rather expensive curve.”

Peru will offer today as much as 120 million soles ($44 million) of bonds due February 2042, the Finance Ministry said in an e-mailed statement.

Sol Rises

The sol gained 0.1 percent to 2.7170 per U.S. dollar, from 2.7187 yesterday. The currency touched 2.7150 yesterday, its strongest level since April 2008.

Mining companies are buying soles to make monthly income tax payments, said Antonio Diaz, a trader at Banco Internacional del Peru. The companies’ dollar-denominated metal exports account for two-thirds of Peru’s sales overseas.

“At some point the dollars will have to leave the system, either through demand from investors or interventions by the central bank,” Diaz said in a phone interview from Lima. “For now foreign investors are staying neutral, not wanting to buy or sell” as they await the outcome of tomorrow’s meeting of European leaders.

The central bank may buy dollars or issue sol-denominated certificates of deposit payable in dollars to stem gains in the sol if the currency touches 2.7130 per dollar, Diaz said.

--Editor: Glenn J. Kalinoski

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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