Nov. 16 (Bloomberg) -- Panama sold $1 billion of dollar bonds in overseas markets after a boost to the country’s debt- rating outlook put it on the cusp of investment grade.

The 10-year bonds were sold to yield 187.5 basis points above U.S. Treasuries, according to Bloomberg data. Credit Suisse Group AG and Deutsche Bank AG arranged the bond sale.

Standard & Poor’s raised the outlook to positive on Panama’s BB+ rating, which is one level below investment grade, on Nov. 9 as tax increases and faster economic growth help keep the budget deficit in check. The Panama Canal, which is undergoing a $5.25 billion expansion, will help propel the economy, S&P said. Latin American countries are selling debt abroad as a global recovery fuels demand for the securities.

“Panama is a very strong credit,” Boris Segura, a Latin America analyst at RBS Securities Inc. in Stamford, Connecticut. “It’s a dynamic economy with fiscal responsibility. It’s a good time to sell bonds. There’s risk appetite.”

Calls to Finance Ministry spokeswoman Rosi Gonzalez weren’t immediately returned.

The country sold bonds in international markets in March, when it issued $323 million in a reopening of 7.25 percent securities due in 2015.

The extra yield investors demand to own Panama’s dollar bonds instead of U.S. Treasuries has narrowed to 1.95 percentage points from 5.40 percentage points on Dec. 31, according to JPMorgan Chase & Co.

Panamanian President Ricardo Martinelli’s tax reform will boost revenue by about 0.75 percent of gross domestic product, helping fund the country’s “ambitious program of public investment,” according to S&P. The country’s general government deficit may shrink to 1.8 percent of GDP in 2010 from an estimated 2.2 percent this year, S&P said.

To contact the reporter on this story: Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net

Last Updated: November 16, 2009 17:05 EST