Analysts Tip Ecuador Bonds

Ecuador may continue to generate headline risk as the government works to change the constitution, but investors who do not expect an oil price collapse should see juicy returns. “With sovereign debt to GDP ratio dropping and oil revenues going through the roof, the chances of default while oil stays over $100 (or maybe even $80) are precisely zero,” says Hallgarten in a sovereign bond relative value analysis. “Right now, the Ecuador election-to-come puts me off owning its debt. Once the air has cleared in October, Ecuador paper should be a worthy addition to any LatAm portfolio,” adds the shop. Ecuador yields 4.5% per annum more than Peru, for example, according to Hallgarten, which sees little value in other LatAm sovereigns. Merrill Lynch meanwhile tips Ecuador sovereign 2015s and 2012 in its external debt long only portfolio, though it warns that the road between now and the referendum for a new constitution may prove bumpy. “We still remain positive that Ecuador will meet its debt obligations, thus we see recent politically-led sell off as temporary. Additionally, the credit is supported by good technicals and the 2012s have one of the highest carry of all sovereigns and are likely to get called early,” says the shop.