The bet on Bitcoin (BTC) has backfired a bit for the small nation as the major cryptocurrency trades at a 70% discount from its peak. At a time when the Latin American nation is struggling with its debt, Morgan Stanley has issued a buy call for the battered Eurobonds.
Simon Waever, the global head of emerging markets sovereign credit strategy at Morgan Stanley, told investors in a note Tuesday that El Salvador’s bonds are overly punished by market conditions even though the country has better financial metrics than many of its peers, reported Bloomberg. The note to investors said:
“The markets are clearly assessing a high probability of the autarky scenario in which El Salvador defaults, but there is no restructuring.”
Waever noted that a country’s debt should not trade below 43.7 cents on the dollar even in the event of default, but also admitted that level is impossible to achieve under current market conditions due to tight global liquidity.
Tuesday’s note assessed that El Salvador should have no problem paying down debt in the next 12 months due to a primary surplus, and has shorter maturities than other distressed nations like Argentina, Egypt and Ukraine.
El Salvador made BTC legal tender in September of last year, and things seemed to be working perfectly fine for the small nation as the bull market reached its peak. The country has bought almost $56 million worth of BTC since September and even used the profits from the last year to build schools and hospitals. However, the country lost a significant portion of its investment once the bear market set in.
There was talk of Bitcoin issuing a volcanic bond after a $1 billion aid request to the International Monetary Fund (IMF) fell through. However, the bonus, which was promoted in conjunction with a Bitcoin city, has suffered numerous delays with no concrete date for its launch.
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