Ecuador bonds rally after banker upsets presidential election

Ecuador's government bonds rallied sharply in early Monday trading after banker Guillermo Lasso defied the polls and won a presidential election on promises to revive the economy.

Lasso took 52% of the vote in a runoff following a campaign that pitted free market economics against the social welfare plans of economist Andres Arauz.

Ecuador's recently restructured bonds rose, with July 2035 paper up 13 cents to 61 cents on the dollar, a level not seen since September, and the July 3030 bond also up as much as 15 cents, according to traders.

"With a supportive few months ahead, including continued IMF co-operation, we think gains will be sustained and turn bullish," Morgan Stanley said in a research note earlier in the day.

Lasso will take office on May 24 and faces the daunting task of restarting a sluggish economy struggling amid a new spike in coronavirus infections as the country's vaccination efforts stall.

There are hopes though that he could get talks with the International Monetary Fund about financial support back on track. Arauz, who had been favourite to win earlier in the year, had pledged to tear up the IMF agreement and increase social spending if elected.

"I think in the short term it is good (...) given the volatility and uncertainty we've seen since the beginning of the year," said Jupiter Asset Management's Alejandro Arevalo.

The economy is still very fragile though, he added, with high unemployment and low productivity. Ecuador's Congress will be fragmented too, meaning Lasso will need to make alliances in order to get his policies through.

"But the good thing is that he has been very clear that he wants to maintain a very constructive relationship with not only the IMF but the international community," Arevalo said.

"So I think that could also be in his favour if he asks for more flexibility or wiggle room in the (IMF) programme."

Reuters