Oct. 5 (Bloomberg) -- As far as bond investors are concerned, Nicaraguan President Daniel Ortega is returning to his Sandinista roots.

Yields on the nation's debt have risen to the highest in Latin America after Ortega aligned himself with Iran and Venezuela, seized an Exxon Mobil Corp. oil facility and told the United Nations that the ``genocide perpetrated by global capitalism'' was responsible for ``destruction, death and poverty.''

The increase marks a turnaround from earlier this year, when the former guerrilla leader said he would improve relations with the U.S. Now, investors are growing concerned that Ortega, 61, will return to policies he used in the 1980s, when the country defaulted and inflation topped 14,000 percent.

``There are two Ortegas,'' said Larry Birns, who heads the Council on Hemispheric Affairs in Washington. ``There's the Ortega that looks at his own errors and wants to make amends. The other Ortega wants to be a major spokesman for the developing world. We don't know what road he is going to take.''

Yields on the government's benchmark 4.5 percent dollar- linked bonds due in 2015 have jumped 2 percentage points to 13 percent since April.

The securities are denominated in the local currency, the cordoba, and payments are linked to the U.S. dollar exchange rate. They are quoted at about 50 cents, down from 55 in April, according to Exotix Ltd., a London-based firm that specializes in distressed debt.

`Soured the Mood'

Yields may keep rising, said Amir Zada, assistant director at Exotix. ``Ortega's negative rhetoric and unfriendly attitude toward private enterprise have soured the mood,'' he said.

They yield more than all 169 dollar securities listed in JPMorgan Chase & Co.'s benchmark developing-nation index. They aren't included in the index, the benchmark for emerging market debt.

The so-called land bonds, were issued in the 1990s to compensate Nicaraguans whose property was taken by the government. There are $974 million of the securities, accounting for about 17 percent of the country's $5.8 billion total debt, which is rated B3, or six levels below investment grade, by Moody's Investors Service.

Foreign investors, including hedge funds, hold about 80 percent of the bonds, according to Exotix. The securities trade on the Nicaraguan Stock Exchange and in private transactions. As much as $10 million trades a month, according to data compiled by the exchange and Exotix estimates.

Socialist Policies

Land grabs were part of Ortega's socialist policies. He restricted trading, boosted public spending and took over banks and supermarkets. President Ronald Reagan, who called Ortega ``the little dictator,'' ordered a blockade of Nicaragua and funded the Contra rebels. The economy fell into recession, gross domestic product per capita fell by more than a third and debt rose to more than five times GDP.

Nicaragua, a coffee, beef and sugar exporter, now is the second-poorest nation in Latin America, with a GDP per capita of $848, trailing only Haiti, according to the International Monetary Fund in Washington.

Yields on land bonds due in 2015 rose to 19 percent in November from 10.5 percent earlier in the year as Ortega climbed in polls before elections. They dropped after he took office in January and pledged better relations with the U.S., and fell as low as 11 percent in March.

Confidence Ebbs

Investor confidence ebbed as Ortega signed energy accords with Venezuela and sought investment from Iran.

Venezuelan President Hugo Chavez, who calls President George W. Bush ``the devil,'' says the U.S. plotted to overthrow him in 2002 and has threatened to cut off oil shipments. The Bush administration has denied the claim. Iranian President Mahmoud Ahmadinejad has rejected U.S. calls to halt the nation's nuclear program.

In his UN speech last week, Ortega defended efforts by Iran and North Korea to develop nuclear power. ``The enemy continues to be the same,'' he said. ``And it's called global capitalist imperialism.''

In the past two months Ortega's government has seized an Exxon fuel-storage terminal and scrapped government contracts with a business owned by an opposition party leader.

``There's concern that old dogs don't change their tricks,'' said Henry Avis-Vieira, president of Wesbruin Capital, an Alexandria, Virginia-based firm that advises investors on distressed developing-nation debt. Bonds are considered distressed when they yield at least 10 percentage points more than comparable maturity Treasuries.

Trade Partner

Nicaragua's participation in the U.S.-backed Central American Free Trade Agreement shows Ortega wants to maintain relations with the U.S., said Russell Crandall, a visiting fellow at the Center for American Progress in Washington. Nicaragua is also negotiating a new loan with the IMF.

The U.S. is Nicaragua's biggest trade partner and provides about $220 million in aid a year to the government.

Rising yields signal investors are concerned the bonds won't be repaid when they start coming due next year.

``It's paper with zero value,'' said Marlon Gutierrez, an anti-Ortega activist in Miami who said his family lost 1,000 acres to the Sandinistas in the 1980s. ``Nobody wants to put money in our country.''

To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net

Last Updated: October 5, 2007 00:53 EDT