Higher bond returns come from Latin American defaulters

Some of the best returns from bonds of the world in 2021 come from serial defaulters of Latin America.

Ecuador’s dollar notes have seen an average gain of more than 25.7% following the presidential victory this year of the favorite candidate of the market, Guillermo Lasso, while the so-called “superbono” of Belize yielded 25.5% in the middle of the plan of the Government to buy it back. Meanwhile, Suriname’s sovereign debt has risen more than 15% this year as the country negotiates with creditors in an effort to reduce its debt burden.

That puts Latin American countries ahead of nearly all their peers on a Bloomberg index of emerging market dollar sovereign bonds, in stark contrast to losses seen in many other countries. For those money managers who were brave enough to own those bonds, the returns are compensation for deep political uncertainty, defaulted debt service payments, and ongoing restructuring negotiations.

“There is no common thread,” said Nathalie Marshik, CEO of Stifel Nicolaus & Co. “They are all idiosyncratic stories.”

Of course, the outlook is duller in emerging markets in general. The Bloomberg indicator of dollar-denominated public debt of developing economies is heading for the worst in four years, while the average cost of protection against default is on track for its biggest annual increase since 2018. And even within Latin America, investors they have incurred large losses on debt issued by El Salvador and Argentina.

In Ecuador, progress was concentrated in the first part of the year, when Lasso won the presidency of the nation and offered policies that are consistent with those supported by the International Monetary Fund. This week, the president said that the latest data shows that economic growth will exceed 3.5% this year amid an improvement in employment and an increase in international reserves. As part of the economic reforms, Lasso is preparing to simplify regulations with the goal of accelerating growth and promoting $ 30 billion in investment.

The only country that has offered more attractive yields than Latin America has been Zambia, whose bonds soared thanks to optimism that the nation’s new president will be able to reach a deal with creditors after he defaulted on nearly all his debts. external loans last year.