El Salvador's Bond Buyback: A Strategic Move to Reduce Debt
El Salvador's fixed-income securities have delivered a remarkable 70% performance in 2023, leading emerging market government bonds. The Central American nation, with over $20 billion in public debt and an economic output of $30 billion, is now reducing its debt through a bond buyback.
El Salvador is redeeming holders of soon-to-mature bonds due in 2025, 2027, and 2029, with a combined outstanding amount of around $1.75 billion. The buyback, open from April 8 to April 15, 2024, allows holders to receive accrued interest and any premium related to the bonds in cash.
This move comes after S&P Global Ratings upgraded El Salvador's creditworthiness from CCC to B- at the end of last year. The yield spread between US and Salvadoran government bonds has also narrowed by 57 basis points to 6.2 percent since the beginning of the year. This indicates growing investor confidence in El Salvador's economic stability. The country's low inflation rate of around 0.8 percent, significantly lower than in the US and the Eurozone, further supports this confidence.
El Salvador's bond buyback is a strategic move to reduce its public debt. By offering to pay accrued interest and premiums in cash, the country aims to regain trust from creditors. This follows previous successful buybacks, demonstrating El Salvador's commitment to fiscal responsibility. The upgrade in creditworthiness and narrowing yield spreads reflect the country's improving economic outlook.
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