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Ecuador Bonds Fall on Concern Correa to Win Presidential Vote

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By Helen Murphy
Nov. 24 (Bloomberg) -- Ecuador's benchmark bonds fell to a six-week low on concern that presidential candidate Rafael Correa, who has said he may default on the nation's debt, will win this weekend's election.
Correa, 43, may have moved ahead of banana magnate Alvaro Noboa after finishing second to him in the Oct. 15 first-round vote, said Gianfranco Bertozzi, a Latin America economist at Lehman Brothers Holdings Inc. in New York.
``Correa now has momentum and he seems to have a slight advantage in the polls,'' Bertozzi said. ``Maybe the best that Noboa can hope for is a very slim victory.''
The yield on Ecuador's dollar-denominated bond due 2012 jumped 33 basis points, or 0.33 percentage point, today to 11.88 percent at 4:10 p.m. in New York, leaving it up 84 basis points since July 28, according to JPMorgan Chase & Co.
The bond's price, which moves inversely to the yield, fell 1.4 cents on the dollar to 100.5 cents today. That's the lowest price since Oct. 13, the last trading day before the first-round vote. The average yield spread on Ecuadorean dollar bonds over U.S. Treasuries has widened to 5.35 percentage points from 4.93 points on Nov. 6, according to JPMorgan's benchmark emerging- market index.
Demand for Ecuadorean bonds has sagged as investors have worried that Correa, who served a four-month stint as finance minister last year, will implement policies that will stunt economic growth and spark social conflict. The International Monetary Fund forecasts Ecuador's economy will expand 4.4 percent this year, buoyed by the rally in oil, the country's biggest export, after growing 3.9 percent in 2005.
`Extremely Tight'
In the first-round vote last month, Noboa, who has promised to create jobs and lure investment, took 26.8 percent while Correa, an ally of Venezuelan President Hugo Chavez, took 22.8 percent. The run-off vote is scheduled for Nov. 26.
Correa, who studied economics at the University of Illinois at Urbana-Champaign, has called for a constituent assembly to write a new constitution. He said he would scrap free trade talks with the U.S. and that he wouldn't rule out an Argentine- style default on Ecuador's $11 billion of foreign debt. Argentina halted payment on $95 billion of debt in 2001.
Noboa, a 55-year-old magnate whose holdings include banks and banana and coffee plantations, has pledged to sell bonds to build 300,000 low-cost homes a year and create 3 million jobs in the South American country. Noboa, who carries a bible on the campaign trail, fell to his knees at a rally this week and begged God to help him win.
``Polls are not reliable but it's pretty close,'' said Rodrigo Da Fonseca, an economist with BlueBay Asset Management, which manages about $1.6 billion of emerging-market assets in London. ``I still expect Noboa to win but the margin will be extremely tight.''