Ecuador's Dollar Bonds Advance as Concerns About Default Ease

By Lester Pimentel

April 11 (Bloomberg) -- Ecuador's bonds rose to highest in more than four months as concern abates that President Rafael Correa will default.

The spread, or risk premium, on the country's dollar bonds declined to the lowest since Nov. 29 as Correa, who threatened to default in December to free up funds for social spending, has refrained from making comments on a restructuring of the nation's $10 billion foreign debt.

``The market believes the story of the default is somehow over,'' said Silvia Marengo, who manages $130 million of emerging-market bonds at Clariden Bank in London. ``There's been no additional talk of default by the government.''

The yield on Ecuador's 10 percent maturing in 2030, the government's most traded securities, fell 7 basis points, or 0.07 percentage point, to 11.08 percent at 4:29 p.m. in New York, according to JPMorgan Chase & Co. The bond's price, which moves inversely to the yield, rose 0.50 cent to 91 cents on the dollar, the highest since Nov. 30.

Ecuador's bonds began climbing from a 2 1/2-year low of 67 cents on Jan. 23 and surged on Jan. 29 after Finance Minister Ricardo Patino said ``creditors were not our enemies'' and he wanted a ``friendly negotiation'' with investors. Patino's comment came after he met with Argentine officials, who traveled to Quito at the request of Correa to advise him on restructuring plans.

The government made a $135 million interest payment on its 10 percent bonds on Feb. 15, and Patino said on March 8 that he anticipates making the next debt payment in May.

Ecuador's bonds have returned more than 26 percent this year, more than any other emerging-market debt tracked by JPMorgan.

The average spread, or extra yield on Ecuador's bonds fell 12 basis points to 6.03 percentage points today, according to JPMorgan's EMBI Plus Index. The spread reached a high of 1,048 percentage points on Jan. 24.

The average spread, or extra yield, on developing nation bonds over U.S. Treasuries fell 2 basis points to 1.57 percentage points, tying a record low set on April 9.

The yield gap between Panamanian and Colombian bonds increased 1 basis point to 8 basis points today. Panama's dollar debt yields 1.38 percentage points more than U.S. Treasuries, down 3 basis points today. Colombia's bonds yield 1.46 percentage points over U.S. Treasuries, down 2 basis points.