Ecuador: Why bond holders may be feeling concern

By Landon Thomas Jr./ NYTIMES.com
There is no evidence, yet, that the government of Ecuador, which defaulted on its bonds in 2008, is having similar thoughts for the $2 billion worth of 7 percent bonds it sold investors last spring. But one might excuse bond investors that gobbled up the issue for feeling a bit queasy just the same.

In recent weeks yields of the bonds — which mature in 2024 — soared to a high of 13 percent and bond prices hit a low of 73 cents on the dollar (with oil prices recovering on Friday, the bond prices bounced back to 85 cents, still a significant discount.)

While Ecuador’s debt levels have come down in recent years, it still runs a 4.5 percent budget deficit, a gap that should widen significantly as oil-driven government revenues decline.

That Ecuador’s fiery president, Rafael Correa, has in the past called the holders of his country’s bonds “true monsters” must also be a bit disconcerting to this second generation of Ecuadoran creditors. They include Goldman Sachs, which recently lent $400 million to Ecuador.

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