Peruvian bonds gained, pushing down yields the most in three weeks, as investors took advantage of a decline in the sol to buy debt at cheaper dollar-based prices.
The yield on the government’s benchmark 7.84 percent sol- denominated bonds due August 2020 dropped seven basis points, or 0.07 percentage point, to 3.77 percent at 11:42 a.m. in Lima, according to data compiled by Bloomberg. The bonds’ price climbed 0.51 centimo to 126.30 centimos per sol.
The sol closed at a seven-week low yesterday after the Finance Ministry pledged to buy $4 billion in the foreign- exchange market and the central bank raised reserve requirements to help stem the currency’s appreciation. The weaker sol makes it cheaper for foreign investors to purchase Peruvian bonds while a drop in implied yields on sol forwards has cut the cost of hedging currency risk, said Diego Llona, a bond trader at Banco Santander Peru SA.
“Right now the hedge is a bargain,” Llona said in an e- mailed message.
The sol gained 0.1 percent to 2.5725 per U.S. dollar, according to prices compiled by Bloomberg. It closed at 2.5755 yesterday, the lowest since Dec. 11.
One-month implied yield on sol forwards, a measure of the costs to hedge, fell to -4.93 percent on Jan. 22, the lowest since August 2010, according to data compiled by Bloomberg. The yield was -1.41 percent today.
The implied yield is derived from the difference between the spot and forward price and compares with the central bank’s benchmark interest rate of 4.25 percent.
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