El Salvador Bond Market Buzzes as Investors Eye Lucrative Trade Amid Donald Trump\'s Possible White House Return

El Salvador's President Nayib Bukele, who calls himself the "world's coolest dictator," might find a key ally in Trump.

El Salvador's bonds are in high demand among emerging-market investors as they anticipate Donald Trump's return to the White House and its potential impact on the country's IMF negotiations.

Investors are keeping a close eye on El Salvador's bond market as President Nayib Bukele's close ties to former U.S. President Donald Trump could pave the way for a lucrative trade. Bukele, who has been dubbed the "world's coolest dictator," has expressed admiration for Trump and may find a valuable ally in him.

According to experts, Trump's presidency could help El Salvador secure billions from the International Monetary Fund (IMF). The IMF has so far been hesitant to provide financial assistance due to El Salvador's adoption of Bitcoin as an official currency.

"El Salvador is a clear trade," said Chris Preece, portfolio manager at Pictet Asset Management. "If Trump gets elected, it increases the probability that the IMF will be less concerned about Bitcoin."

Investors Boost El Salvador Bonds on Trump Hopes, Ahead of US Midterms

Since June 27, El Salvador's dollar bonds have shown a strong performance as investors anticipate a Trump victory in the upcoming U.S. presidential election. President Joe Biden's weak performance in the first debate led investors to adjust their expectations, increasing the likelihood of a Republican win.

In response to Biden's weak debate performance, investors are adjusting their expectations, increasing the likelihood of a Republican win. As a result, El Salvador's bonds have risen by 2.8%, with notes maturing in 2035 gaining 0.2 cents on the dollar.

Emerging-market investors generally expect a Trump presidency to strengthen the dollar, while Asian currencies and the Mexican peso could face pressure. This shift could benefit El Salvador by making its debt more appealing to investors.

Bukele has frequently used his social media presence to defend Trump. Following an assassination attempt on Trump, Bukele posted "Democracy?" and joined other governments in condemning the attack.

Moreover, Bukele has linked himself to Trump's re-election campaign by inviting prominent conservative figures to his inauguration, including Trump's son. Bukele's efforts to secure U.S. support are evident in these maneuvers.

Bukele's IMF Hopes: Trump's Return, Bitcoin Hurdles

Investors believe that Bukele's administration is deliberately delaying an IMF deal in anticipation of Trump's return. While Trump's fiscal plans may concern some, a friendly face in the White House could help El Salvador secure an IMF agreement after three years of talks.

The United States is the IMF's largest shareholder and must approve any loans before they can be disbursed. This gives Trump significant influence over El Salvador's ability to access IMF funding.

Arif Joshi, fund manager at Lazard Asset Management, shared his perspective, stating, "The real hurdle in getting that program across the finish line is really the Bitcoin problem."

Fund officials have repeatedly warned about the risks of Bitcoin as legal tender and asked El Salvador to abandon it to receive IMF dollars. However, Bukele has remained steadfast in his cryptocurrency endeavors.

El Salvador Debt Challenges, IMF Talks Continue

El Salvador's total debt, including what it owes to pension funds, is around 70% of GDP. According to S&P Global Ratings, the country's public finances are weak due to long-standing structural issues. An IMF deal would provide access to additional funding linked to economic reforms, boosting investor confidence in El Salvador's debt management.

This year, the fiscal deficit is expected to窄化to 3.9% of GDP, down from 4.7% in 2023, amid increased spending on wages and capital investments, as reported by Fitch Ratings.

In May, Moody's Ratings highlighted the country's lack of a strategy to address high funding costs and identify financing for medium-term debt obligations. Anthony Kettle, senior portfolio manager at RBC Bluebay, commented, "They have shown a very high willingness to pay, but where they have underwhelmed has been on their willingness to go and get an IMF deal." This statement reflects the investors' desire to see the next step in El Salvador's economic plans.

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