Ecuador's bonds performance for November turned negative on Friday after an opinion poll showed a market-friendly presidential candidate no longer leads the country's run-off on Sunday.
The overall emerging debt market remained almost flat, however, as many traders remained on holiday after the US Thanksgiving holiday on Thursday. Ecuador's bonds plunged 1.82 percent on average while the country's risk spreads widened 5 basis points to 533 points according to the benchmark J.P. Morgan's EMBI+ index.
That was the second consecutive day of heavy falls in Ecuador's bonds, leading to losses of 1.7 percent in the month to date. Since the beginning of the year, however, the country's bonds have posted gains of about 15 percent. The latest sell-off started on Wednesday, as opinion polls showed that Rafael Correa, who has heightened Wall Street's concern Noboa.
The latest opinion poll by Cedatos-Gallup showed that Correa is now leading the race with 52 percent of valid votes, leaving Noboa, who was trailing behind with 48 percent. The poll has a 3 percent margin of error. "We expect markets to rally in the event of a Noboa victory," Goldman Sachs analyst Alberto Ramos wrote in a research note, adding that, "Were Correa to prevail, we would expect the market to sell off to near the levels seen in late September, early October."
According to Ramos, Noboa would likely pursue "debt liability management operations" targeting the repurchase of the country's high-coupon bonds maturing in 2012 and eventually also the bonds due 2030, at a later stage. Ecuador's global bonds due in 2012 declined 1.125 point to be bid 100.938 at a yield of 9.846 percent.
The overall emerging market, however, remained almost stable with risk spreads widening only 1 basis point to 195 points on the EMBI+. Yields paid on Brazil's global bond due in 2040 reached an all-time low of 6.136 percent supported by Standard & Poor's decision to revise the country's credit outlook to positive from stable.
The S&P decision, announced when the debt market was closing on Wednesday, failed to spark a rally in Brazil's bonds, but was giving support to prices in a day when stocks fell across the board. "I think that if stock markets were not lower we would be raising a little, said Diego Beleza, emerging markets analyst with Prosper bank in Rio de Janeiro. "The S&P decision is positive news but I also don't think it would lead spreads to tighten much more. We've been trading at very tight levels already.