Bonds In El Salvador’s Market Struggle To Thrive Following Bitcoin Law

The ongoing bitcoin adoption in El Salvador seems to be causing a lot of issues. But, for now, it seems to be the turn of Bond investors. The yields have recently spiked as investors show signs of uncertainty on what the economy holds in store.

According to a Bloomberg report, the bonds yield curve has inverted, showing that short-term bonds now have higher yields than long-term bond options.

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The report stated that this sign is not good for the bonds market. It shows that investors see these bonds as riskier than the long-term ones. As a result, the yield curve will move upwards due to the uncertainty of the longer-term pricing.

First Day For Bitcoin Law And Bonds Decline

According to Ben Emmons, working with Medley Global Advisors, the bonds in El Salvador lost ground on the first day of the law. As a result of this movement, Emmons said that the market action shows that using Bitcoin in the country might lead to unforeseen situations.

But Emmons is not the only one making the same assessment. According to the data from Bloomberg, the bonds started the move to inversion a few months back.

This was June when the parliament passed the Bitcoin Law. President Nayib Bukele has raised the controversial bill to legalize Bitcoin as a legal tender in the country.

Is The New Law Causing The Bearish Trend?

Many market observers think that the Bitcoin law alone is not responsible for the bearish trend in El Salvador bonds. The present pressure is a result of many factors. Many others have said that Bukele ousted the constitutional tribunal last May led to a lot of negative sentiment.

Many people think that his economic vision is not a very encouraging one. At the top of it all, the President fired the El Salvador attorney general plus many other prominent judges. This is why many people believe that his interest towards Bitcoin also triggers the bearish trend in the bonds market.

Bitcoin keeps falling after getting rejected by the $51k zone | Source: BTCUSD on TradingView.com

For some months now, the spread between the country’s bonds and US Treasuries has been widening. As of August 12, it reached 77%. Another thing worth noticing is that the President failed to sign a deal with the IMF. This failure has also affected the way investors view the bond market.

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In another report, many citizens of El Salvador are complaining about the technical issues surrounding the “Chivo” digital wallet from the government. This is also discouraging, given that the Bitcoin law took effect a few days ago.

Featured image from Pixabay, chart from TradingView.com