El Salvador’s Bitcoin legalization triggers sell-off in its government bonds

The Salvadoran sovereign-debt market came under selling pressure as bitcoin traded below $44,000. On the same day, the law recognizing bitcoin as a legal tender came into force, Bloomberg reports.

The yields on El Salvador’s near-term sovereign bonds rose above those of bonds maturing later. The inverted yield curve signals risks of recession and trouble in the country’s ability to service its obligations.

The publication notes that changes in El Salvador’s sovereign debt market began in June after the Legislative Assembly passed a bill to legalize Bitcoin.

“El Salvador slipped on the first day of the new Bitcoin law. The state of the sovereign debt market is an indication that widespread use of the first cryptocurrency could have serious consequences for the country”, — said Ben Emos, a strategist at Medley Global Advisors.

Bloomberg also cited among possible reasons for the sell-off in near-term maturities the Supreme Court’s decision to permit President Nayib Bukele to run for a second term. Human Rights Watch described the step as a “dismantling of the country’s democratic institutions.”

Back on Sept. 7, the Salvadoran government purchased 550 BTC into a $150 million fund approved by authorities to facilitate the exchange of bitcoin and dollars.

In August, local residents took to the streets to protest the legalization of the first cryptocurrency. The Salvadoran Association of International Freight Carriers called for scrapping the obligation to accept bitcoin as payment.

According to a poll, 70% of Salvadorans opposed the bill. According to another study, only 20% of respondents supported Bukele’s initiative.

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