While the bonds of all Latin American countries posted losses in the three months to June, the worst performing nations were cash-strapped nations. Argentina’s benchmark dollar index fell about 29% as creditors were reluctant to roll over domestic debt, pressuring the government to print more money and jeopardizing a deal with the International Monetary Fund.
El Salvador had the second worst performance and its instruments fell 22% amid a sell-off of bitcoin, which was approved as legal tender in the country last year and has been a big gamble by President Nayib Bukele. The leader has spent about $105 million buying the cryptocurrency and has lost more than half of that value, according to calculations by Bloomberg. While that may not seem like much, it all counts for a country that is struggling to raise new funding through a bitcoin-linked bond.
In Ecuador, bonds that were restructured less than two years ago fell about 18% as violent protests led by indigenous groups over rising fuel and food prices brought large parts of the country to a standstill. The demonstrations have disrupted oil production and become the biggest political crisis for President Guillermo Lasso, who recently faced the threat of being ousted from office after just over a year of winning elections.
Colombia also underperformed amid its sovereign bonds plummeting to record lows after leftist Gustavo Petro won the presidential election on a platform that seeks to wean the country away from its reliance on commodities and tax the rich. The nation’s debt lost 13% during the quarter.
Even Brazil, which has outperformed the region with a loss of just 8.5%, may be running into trouble as the government tries to increase public spending ahead of elections in October, reigniting fiscal concerns.
“Latin America’s hard currency debt was hit by mounting political concerns,” said Jens Nystedt, senior money manager at Emso Asset Management. “Looking into the second half, we would expect some of those political concerns to ease, with the exception of Brazil, where they have yet to hold elections.”