UPDATE 1-Peru boosts domestic debt issue at lowest rates ever

Wed Feb 27, 2013 4:04pm EST

LIMA Feb 27 (Reuters) - Peru sold 1.8 billion soles ($705 million) in bonds on Wednesday at historically low yields, Finance Minister Luis Miguel Castilla said.

The size of the deal was larger than expected as earlier traders said 1.3 billion soles in two tranches were being placed.

"This was extremely successful," Castilla said at a briefing with cabinet officials. "Demand was three times larger than the amount supplied, and this was done at some of the lowest rates in our history."

The Finance Ministry confirmed earlier comments from traders that said the 2023 bonds were placed to yield 4.2 percent and the 2042 bonds were sold to yield 5.14 percent.

Proceeds of the sale will be used to buy dollars to pay down foreign debt. Peru was once an economic basket-case but last month was ranked by the IMF as the Latin American country most resistant to economic shocks.

Castilla said earlier this month that the Finance Ministry would buy $4 billion on the spot market this year to avert excessive currency strengthening that could hurt Peru's terms of trade. The sol is trading near a 16-year-high of about 2.58 per U.S. dollar.

About $1.8 billion will be bought to pay down foreign debt, $1.2 billion will be bought to bolster a fiscal stabilization, and $1 billion for normal debt service.

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