There is an age-old saying on the market, which states that traditional rating agencies are not reliable indicators. El Salvador, a Bitcoin-holder, has recently experienced the same.

Since Fitch ‘s downgrade El Salvador in September 2022, with a forecast of a default in January 2023 the country’s junk rated bonds have skyrocketed. This is similar to bitcoin’s meteoric growth throughout 2023.

BTC vs El Salvador bond (TradingView)

Market data shows that El Salvador’s bonds have increased in value by 62% and are now trading for 72 cents per dollar. Bitcoin has also risen by 79% in the same period.

Factset reports that El Salvador’s bonds outperformed Invesco Emerging Markets sovereign debt ETF (PCY), which is one of the biggest holders of the country’s debt.

In January, announced that it had repaid a $800 million bond, which Moody’s said would not be possible to do.

El Salvador declared bitcoin legal tender by mid-2021, and began to accumulate the cryptocurrency in September 2021. According to calculations made by Bloomberg, El Salvador held 2546 bitcoins as of April. According to current market data, the digital assets are worth $76.6M. They were purchased for $108,2M.

Volcano Energy announced $1 Billion in commitments for the construction of a 241 Megawatt (MW), bitcoin mine in Metapan, El Salvador. Tether, which is the issuer for USDT, is among investors.

Ratings agencies disapprove

El Salvador’s decision to diversify its portfolio into bitcoin has drawn the ire from rating agencies and the International Monetary Fund.

Moody’s stated last fall that “Policy differences relating to the government’s embrace bitcoin have decreased the likelihood of an IMF deal being reached in time for the government’s $800 million bond maturing date scheduled for January 2023,”

S&P stated that El Salvador’s adoption of bitcoin as legal tender in 2021 would have “immediate and negative implications.”

S&P said at the time that “the risks” of El Salvador adopting bitcoin “seems to outweigh its possible benefits.” There are immediate negative consequences for the credit.

The IMF stated in February that the risks associated with El Salvador’s adoption of bitcoin have not “materialized” due to the limited use of bitcoin so far.

The IMF stated in a Reuters-reported statement that “given the legal risks and fiscal fragility of crypto markets as well as the largely speculative character of these markets, authorities should reconsider plans to increase government exposures to Bitcoin.”

The recent change in fortunes for Salvador’s sovereign bonds is part of a broader market trend. Early this year, -rated junk bonds from Turkey, Argentina, and Nigeria outperformed-rated investment-grade bonds.

Omkar Godbole is the editor.