El Salvador: The World Bank said on Wednesday that due to environmental and transparency concerns, it would be unable to assist El Salvador with its bitcoin implementation.

"We are committed to assisting El Salvador in a variety of ways, including currency transparency and regulatory processes," a World Bank spokesperson said in an email.

"While the government approached us for assistance with bitcoin, the World Bank cannot support this due to environmental and transparency shortcomings."

Earlier on Wednesday, Salvadoran Finance Minister Alejandro Zelaya stated that the country had requested technical assistance from the Bank in order to use bitcoin as a parallel legal tender alongside the US dollar.

The minister also stated that ongoing negotiations with the International Monetary Fund have been successful, despite the fact that the fund stated last week that the country's adoption of bitcoin poses "macroeconomic, financial, and legal issues."

On Wednesday, Zelaya stated that the IMF was "not opposed" to the implementation of bitcoin. The International Monetary Fund did not respond to a request for comment.

Investors have recently demanded higher premiums to hold Salvadoran debt, owing to growing concerns about the completion of the IMF agreement, which is critical to filling budget gaps through 2023.

Bonds sold off across the curve on Wednesday, with the 2032 issue falling more than 2 cents to 96.25 cents on the dollar. The spread between Salvadoran debt and US Treasuries fell to 705 basis points on Wednesday, after reaching a four-month high of 725 bps on Tuesday.

"There is no quick fix for an IMF programme solution, and there is even uncertainty about whether the bitcoin proposal is compatible with diplomatic US (or) multilateral relations," said Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont Securities in New York.

El Salvador became the first country to recognise bitcoin as legal tender this month, with President Nayib Bukele praising the cryptocurrency's potential as a remittance currency for Salvadorans living abroad.

Bukele also pulled out of an anti-corruption agreement with the Organization of American States this month, which alarmed the US government, as Washington seeks to reduce corruption in Central America as part of its immigration policy.

"The recognition of a 'Bukele' risk premium has almost certainly done some permanent damage to investor sentiment," Morden wrote in a client note.

However, the market may be overly focused on the news headlines and not enough on the possibility of an IMF agreement, according to Shamaila Khan, head of EM debt strategies at AllianceBernstein in New York.    

"It is critical for El Salvador to complete the IMF programme. They wouldn't have the conversations if it wasn't clear to them "She stated.

"In our opinion, there is far too much risk priced in at these levels."