El Salvador’s Big Bet on Bitcoin Is Backfiring in Its Bond Market

On Tuesday, El Salvador became the first country to adopt Bitcoin as legal tender, earning widespread plaudits from cryptocurrency enthusiasts.

But it turns out that emerging market bond investors don’t seem to have loved the idea quite as much, or perhaps they were put off by the fraught rollout of the government’s Chivo Wallet, or maybe the subsequent “buy the rumor, sell the fact” price action in Bitcoin itself.

The so-called ‘El Salvador Selloff’ saw the price of Bitcoin tank by as much as 16% to $43,050, before recovering to reach around $47,300 as of publication time.

Or perhaps debt investors were reacting to a decision by one of El Savador’s top courts on Friday that a sitting president could run for a second term — a move that potentially paves the way for Nayib Bukele to seek reelection and which Human Rights Watch has criticized as the latest dismantling of the country’s democratic institutions.

Either way, El Salvador’s entire yield curve has now inverted, meaning bonds with near-term maturities are yielding more than debt that’s due further out.