World-Beating Bond Surge Squelched by Ecuador's Investor Talks

Speculation Ecuador will tap overseas debt markets is derailing the world’s biggest bond rally.

The Andean nation’s $4.71 billion of notes have dropped since Tuesday, after reports that the country hired Citigroup Inc. to organize meetings with bond investors next week. Before knowledge of the talks surfaced, Ecuador’s debt had returned 14.88 percent this year as a rebound in oil prices eased concern about the cash-strapped OPEC member’s finances.

Investors are worried Ecuador will seek to capitalize on the drop in borrowing costs to sell debt abroad for the third time in a year, creating a glut that will depress bond prices. Despite the rally this year, average yields in excess of 12 percent had led analysts, including Gramercy Funds Management LLC’s Sarah Glendon, to presume that Ecuador would refrain from returning to international markets. No nation with Ecuador’s junk grade of B has sold bonds bearing a coupon above 11 percent since Jamaica in 2001, data compiled by Bloomberg show.

“My initial reaction upon reading about Ecuador’s planned return to the market was one of shock,” Glendon said by telephone from Greenwich, Connecticut.

Ecuador’s Finance Ministry and the Economic Policy Ministry didn’t reply to requests seeking comment on whether its holding talks with bond investors and plans to sell more debt.

The meetings will take place in the U.K. and U.S. between March 29 and April 4, said a person familiar with the plans, who asked not to be identified because he’s not authorized to speak publicly.

To contact the reporter on this story: Nathan Gill in Quito at ngill4@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Michael Tsang at mtsang1@bloomberg.net, Lester Pimentel

By: Nathan Gill

©2016 Bloomberg News