Summary: International investors were the main buyers of nominal Soberanos in May, accounting for 60% of all gross inflows during the month, while local banks, Insurance companies, and public funds accounted for the remaining 40%. On the other hand, Pension funds made up the majority of sellers, accounting for virtually all gross outflows in the month. The net issuance of nominals in May amounted to PEN1.5bn (+0.9%M). Insurance companies were the sole buyers in the VAC market buying from AFPs (not unusual for the smaller linker market in Peru), absorbing c.100% of the PEN45mn of net linker issuance. In terms of nominal curve allocation, pension fund holdings repositioned towards the 2034s, 2037s from 2039s, 2040s. Offshores’ repositioned their allocation to the 2037s, 2039s, and 2040s from 2029s, 2031s, 2033s, 2034s, and 2042s.
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Market View: in our last report we noted that we preferred extending duration at the country’s upcoming debt liability management (DLM) operations. This operation has materialised and we would thus enter a long PeruGB 2035s recommendation at 6.38% with a target or 5.75% and a stop loss of 6.70%. We do note that heading into 1H26 may lead to more focus on the upcoming local elections and would suggest looking at potential forward FX hedges in the area of 3x12 or 6x12 on local bond holdings. 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 the 2% target. Peru looks to be a strong regional defensive and is likely to remain closer to a debt-to-GDP ratio of 34%. The recent 8th AFP withdrawal proposal is still at the committee stage for now being pushed for commission debate in the next legislative session, suggesting a delay to late August or September. Nevertheless, AFPs currently account for only 9.3% of the market 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 a legislative hurdle vs. the previous withdrawal episodes. Peru inflation remained below the 2.0% target at 1.7% through June and a rise in Chinese exports to Peru at lower prices are likely to keep inflation well anchored, the trade surplus is well supported and should continue to help the country build up foreign currency reserves, which have now reached USD85bn.
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International investors were the largest buyers in May, increasing their holdings of Soberanos by PEN1.2bn to total holdings of PEN73.0bn from PEN71.9bn in April. International investor holdings, as a percentage of total bonds outstanding, rose slightly by 0.3pp, now at roughly 42.85%, sustaining the recovery from the recent 35.5% low as of March 2024, although still just off recent highs of 43.5% in February 2025.
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Pension funds were the largest net sellers of Soberanos in May, selling a net total of PEN472mn, taking their holdings from PEN16.3bn to PEN15.8bn. Local pension funds own just 9.3% 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 more stable inflows into the AFP system
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Local banks were net buyers in May, with their holdings rising to PEN56.8bn from PEN56.2bn in April 2025. Ownership remains roughly flat at 33.3% of outstanding bonds. Overall, local bank holdings rebounded from the recent low of 32.9% 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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Public Funds were small buyers in May, with their allocation increasing by just PEN46mn and in rounded terms staying near PEN7.2bn with holdings sticking at 4.3% of the total Soberanos market.
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Insurance companies were also minimally net buyers in May, with their allocation increasing by just PEN67mn to PEN15.6bn from PEN15.5bn, which paired back holdings to 9.1% from 9.2% of the total Soberanos market.