El Salvador Dollar-denominated Bonds Hit An All-time Low Amid Bitcoin Bond Plans

Following weekend reports that El Salvador is planning to fund its Bitcoin City initiative with Bitcoin (BTC) bonds, El Salvador’s USD bonds has nosedived to 64.4 cents to the dollar on Monday, November 22. Although, data from Bloomberg may suggest that dollar bonds have been on a steady nosedive since they topped $1.10 in April 2021.

El Salvador Among The Worst Performing Global Traders — Reports

Any bond issued by a government or foreign company, outside of the United States and denominated in USD instead of that country’s local currency is considered to be a dollar-denominated bond. However, Monday’s drop meant that the Central American country’s debt brings it into the list of worst performers in global trading, per Bloomberg reports. And now, investors may be starting to lose faith in President Nayib Bukele after declining the IMF’s offer to assist the nation with development funds.

Meanwhile, Nathalie Marshik, the Managing Director of investment banking company Stifel Nicolaus, has commented on the development, saying that the announcement only consolidates the ‘anything-but-the-IMF’ path. Furthermore, she added that bonds are falling “as the market reassesses possible recovery value lower on the unpredictability of policies.”

Speaking on Bloomberg TV on Tuesday, Blockstream’s Chief Strategy Officer, Samson Mow claims that the Bitcoin bond will pay an annual interest of 6.5% plus another 50% of El Salvador’s Bitcoin gains after deducting the investment costs for its mining infrastructure. This directly puts a strain on El Salvador’s plans of using its BTC gains to build an animal hospital, according to earlier reports by TheCoinrise. The official also says that dividends will be paid in either Tether (USDT) or USD.

Mow stresses further that he’s of the opinion that the Bitcoin bond provides an alternative avenue by which institutional investors can gain exposure to Bitcoin without necessarily having to hold Bitcoin themselves. He then added that it will also be a way for investors to help El Salvador in developing a lot faster.

Mow is hopeful about structuring the Bitcoin bond in a way that people can actually present it to boards and directors as a normal bond. According to him, it really is a normal bond, with just a large chunk of Bitcoin attached.

The IMF Talks Still On?

For the better part of 2021, El Salvador has been in talks with the International Monetary Fund (IMF) over a possible credit facility of $1.3 billion. But those talks appear to have now broken down as President Bukele has decided to fund more local initiatives such as school building with Bitcoin, over USD.

This is despite the assurances of the president of the Central Reserve Bank of El Salvador, Douglas Rodriguez, who we reported at TheCoinrise as saying that the country’s actions on opting for BTC as its legal tender will not affect the plans to secure the $1.3 billion extended loan from IMF.

The IMF has now issued a concluding statement regarding El Salvador’s funding request on Nov. 22. Although El Salvador’s economy has rebounded quickly from the pandemic, fiscal deficits and high public debt services are creating bigger holes in the services the country can provide, it stated.