Summary: Local banks were the main buyers of nominal Soberanos in March, accounting for 84% of all monthly inflows, with insurance companies accounting for just 11%. On the other hand, Pension funds and International investors made up the majority of sellers, accounting for 96% of all monthly outflows. The net issuance of nominals in February amounted to PEN0.9bn, of which local banks, when netted against all outflows, absorbed at least 84% of net issuance, while insurance companies absorbed close to 11%, and public funds; 4%. Insurance companies were the main buyers in the VAC market (not unusual for the smaller linker market in Peru), absorbing 87% of the PEN69mn of net linker issuance. Pension funds bought the remaining 13%. In terms of nominal curve allocation, pension fund holdings repositioned towards the 2039s, while offshore repositioned their allocation to the 2037s.
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Market View: Peru’s stronger fiscal position, currency stability and higher risk-adjusted real yields have supported the recovery of international investor holdings. In addition, domestic inflation in Peru is well-anchored below or near the 2% target. Peru looks to be a stronger regional defensive play than its historically fiscal conservative counterpart, Chile, which is likely to face some inflationary and fiscal pressures in the coming years as it approaches its debt limit of 45% of GDP. In comparison, Peru is likely to remain closer to a debt-to-GDP ratio of 33%. The recent 8th AFP withdrawal proposal remains at the committee stage for now but remains one near-term risk to watch, although we note AFPs represent only 9.2% of the market at the moment, down from 27% pre-COVID. In addition, AFP cash holdings currently total c.USD2.5bn, while the BCRP maintains policy tools to support market liquidity. The passing of reforms to the pension system in 2024 does add some legislative hurdle vs. the previous withdrawal episodes. Last month (17 March) we took profit in PeruGB 2039s at 7.00%, from 7.13% (a 13bp duration return), and went long PeruGB2029s at 4.70% and PeruGB 2037s at 6.85%; a defensive barbell towards liquid but lower AFP and foreigner allocated tenors amid withdrawal noise. We are now taking profit on PeruGB 2029s at 4.50% for a 20bp duration return and removing our PeruGB 2037s recommendation at 7.00% (for a 15bp duration loss). We are repositioning into long PeruGB 2033s at 6.32%, targeting 6.00% , with a stop-loss of 6.48%. This specific bond maturity offers preferred carry and rolldown vs. other tenors along the curve, while still benefiting from a potential reversion in UST yields after the recent basis pressures. In addition, the softer-than-expected activity print in Peru and rising unemployment figures will likely add to inflation pressures and open the door for a BCRP rate cut by the middle of the year.
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Local banks were the largest buyers in March. Holdings rose to PEN56.1bn from PEN54.9bn in February 2025, or to 33.3% from 32.9% of outstanding bonds. Overall, local bank holdings rebounded from the recent low of 32.9% of holdings in February but remain well below the June 2024 high of 40.3%; a welcoming development at is has been supported by the recovery of international investor and local insurance company holdings.
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Insurance companies were the second-largest buyers in March, with their allocation increasing by PEN153mn to PEN15.3bn from 15.1bn, which drove holdings higher to 9.09% from 9.05% of the total Soberanos market.
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Pension funds were the largest net sellers of Soberanos in March, selling a net total of just under PEN215mn, taking their holdings from PEN15.6bn to PEN15.4bn. Local pension funds now own just 9.2% of the Soberanos market, down from 10.3% in November 2024, but still up from a historical low of 7.8% in September 2024, after the maturity of the recent repurchase agreements with the BCRP and steadier inflows into the AFP system
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International investors were the second-largest seller in March, reducing their holdings of Soberanos by just PEN0.2bn, reducing their total holdings to PEN72.6bn from PEN72.8bn in February (i.e., not a major shift). International investor holdings as a percentage of total bonds outstanding fell slightly by 0.3pp, now at roughly 43.2%, sustaining the recovery from the recent 35.5% low as of March 2024.