Peru’s borrowing costs rose to the highest in 21 months after former army rebel Ollanta Humala claimed victory in the Andean country presidential runoff yesterday, sparking concern that he will seek greater state control of the economy and cause mining investment to drop. The extra yield investors demand to own Peruvian government bonds instead of U.S. Treasuries rose 42 basis points, or 0.42 percentage point, to 235 at 7:43 a.m. New York time, according to JPMorgan Chase & Co. The spread was the highest since September 2009. Humala, 48, leader of Peru’s Nationalist Party and a one- time ally of Venezuelan President Hugo Chavez, had 51.3 percent of votes to 48.7 percent for Congresswoman Keiko Fujimori with 88 percent of ballots counted. The candidates were statistically tied in polls before the election. Peruvian stocks and bonds swung wildly last week on concern Humala would win the vote and jeopardize $50 billion of foreign investments. “We don’t believe the market was fully positioned for a Humala victory, and we would expect Peruvian assets to come under pressure,” Brian Jackson, an emerging-market strategist at RBC in Hong Kong, wrote in an e-mailed note. “We expect uncertainty to remain in place as the market assesses how ‘real’ Humala’s moderation is.” Fujimori, the daughter of former President Alberto Fujimori, told supporters last night she is awaiting final results and will “be the first” to recognize a defeat to Humala. Market Outlook Peruvian dollar bonds due 2037 declined, pushing yields up to the highest since May 5. The bond’s price fell 2.59 cents to 108.25 cents on the dollar, while the yield climbed 18 basis points to 5.92 percent. “While Humala moderated his tone throughout the campaign and certainly compared to the 2006 election, investors are likely to react negatively as uncertainty is still high,” Societe Generale SA strategists led by Benoit Anne in London wrote in a research report. To broaden his appeal to Peru’s growing middle class, Humala abandoned rhetoric against foreign mining and natural resource companies used during the 2006 campaign, when he lost the presidency to Alan Garcia by five percentage points. Humala shelved his 198-page campaign platform to back away from an earlier pledge to rewrite the constitution and unilaterally raise royalty fees on mining and gas production. Peru is the world’s top silver producer, third in copper and zinc and sixth in gold. Export revenue from mineral exports rose by 27 percent to a record $21 billion on surging prices. Risk-Adverse Investors “The natural resource companies will be the first ones sold by risk-adverse investors,” said Richard Segal, a fixed- income strategist at Jefferies International Ltd in London. “If he appoints a cabinet quickly and seeks to govern from the center, the damage to market sentiment could be limited.” Southern Copper Corp., Peru’s biggest producer of the metal, fell in pre-market U.S. trading. The shares retreated 2.9 percent to $33.70 in New York. Foreign investors moved money into Peru last year as metal prices surged and the economy grew at the second-fastest pace in 16 years, prompting the central bank to raise borrowing costs to contain inflation. “Investors may pull out of the local currency soberanos bonds as foreigners piled in quickly between May and November of last year,” said Joe Kogan, head of emerging markets strategy at Scotia Capital Markets Inc. in New York. “They haven’t left and they are waiting to see what happens.” In the two weeks after Humala topped the field in the first Round April 10, sol-denominated bond yields rose to a two-year high and the currency fell to a 10-month low. To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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