International investors have been steadily adding positions in Peru Soberanos since May when holdings touched an over-two-year low. In September, international investors increased their holdings by PEN2.4bn, reaching a total of PEN63.8bn or 50% of the outstanding. During the month, pension funds and banks were the main sellers while foreigners were the main buyers, adding positions in most parts of the curve; Soberanos 32s and 34s in particular experienced outsized demand. With an unfavourable external environment and internal political noise, yields along the Soberanos curve moved higher by between 18bp and 90bp, with bonds at the front end of the curve underperforming, reflecting the expected 100bp rate hike delivered by the central bank over its last two meetings.
The recent cabinet changes announced by President Castillo have provided some level of comfort to investors. As such, in October to date, Soberanos yields have trended lower, erasing some of the losses seen during October. Despite the recent reduction in political noise, we remain cautious, as there is still ample uncertainty, which could continue to impact local markets’ performance. For instance, any discussion involving the structure of the pension system could have a relevant impact on the local curve.