El Salvador’s bonds are affected by the Bitcoin Law

Although bond investors seem to be betting against El Salvador’s controversial Bitcoin Law (although other factors must be considered).
The El Salvador move to embrace Bitcoin has upset the feathers of bond investor, with yields spiking because investors signal uncertainty for the emerging economic system. Bloomberg’s Sept. 8 report notes that the yield curve on El Salvador’s bonds has recently inverted, which means that bonds with short-term maturities are yielding more than what is due from the instruments. It stated that this is a sign that investors view shorter-term debt as more risky. Most yield curves will tend to slope upwards due to the uncertainty in pricing things over the long-term. “Ben Emons, of Medley Global Advisors, stated that El Salvador’s bonds lost significant ground on the first day of its new Bitcoin Law. He said that this is a bad sign because investors see shorter-term debt as more risky and most yield curves will slope upwards due to the inherent uncertainty of pricing things over the longer-term. However, El Salvador’s decision to recognize Bitcoin legal tender is not the only factor putting downward pressure on the country’s bond market. Other pundits have pointed out that El Salvador’s May ousting of its constitutional tribunal was a major factor in negative sentiment about the country’s economic outlook. Bukele had fired the country’s attorney general, and top judges. As of August 12, the spread between El Salvador’s government bonds and comparable U.S. Treasuries has increased by 77% since May. The spread between El Salvador’s government bonds and comparable U.S. Treasuries has widened by 77% since May 12.

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