Debut Honduran Bonds Rally as Polls Show Tighter Election

Honduras’s debut global bonds are heading for their best monthly performance since being sold in March as the ruling party’s presidential candidate climbs in the polls before the Nov. 24 election.

Yields on Honduras’s dollar bonds due in 2024 have fallen 81 basis points, or 0.81 percentage point, to 9.26 percent this month after reaching a record 10.77 percent in September. Honduran securities have returned 6.8 percent this month, outperforming the 2.8 percent average for emerging markets, according to JPMorgan Chase & Co.’s EMBIG index.

Polls in the Central American country show former lawmaker Juan Orlando Hernandez of the National Party gaining on Xiomara Castro, the wife of deposed ex-President Manuel Zelaya. Investors favor Hernandez over Castro, whose husband allied himself with late Venezuelan President Hugo Chavez, according to Miguel Gandolfo, an emerging-market analyst at F&C Asset Management Plc in London.

“He is a continuation of the establishment,” Gandolfo said in a phone interview today. “The expectation is that he would favor more market-friendly” policies.

Castro, who had led a group of eight candidates trying to succeed President Porfirio Lobo, now trails Hernandez of the ruling National Party among likely voters by a 35 percent to 30 percent margin, according to a CID-Gallup poll published Oct. 24 in the newspaper La Prensa. Mauricio Villeda of the Liberal Party had 19 percent. The survey of 1,525 people was conducted Oct. 9-15 and has a margin of error of 2.51 percentage points.

Fed Impact

Honduran bonds are also rallying as investors seek higher yielding securities in the wake of the Federal Reserve’s decision to continue its $85 billion monthly bond-buying program, according to Carl Ross, a managing director at brokerage Oppenheimer & Co. in Atlanta. While the market favors Hernandez, neither candidate would promote “radical” policies, he added.

Messages seeking comment left at the Honduran Finance Ministry weren’t returned.

Standard & Poor’s lowered Honduras’s credit rating in August to B from B+, citing a rising debt burden and a limited ability to fund deficit spending. The B rating, five levels below investment grade, puts the country of 8 million people in the same category as Ghana and Ukraine.

Zelaya, who has joined his wife at campaign rallies, was forced out of the country in 2009 by the military after he pushed forward with plans to host a non-binding referendum that opponents said was aimed at allowing him to remain in power after his term ended.

Boost Security

Hernandez, 45, has vowed to boost security and employment in a country ranked by the United Nations as the world’s most violent. He’s also said he’ll expand a program offering cash payments to the country’s poorest families.

There will probably be “a pop in the bonds” if Hernandez wins, said Ross. “The view is that there’s going to be a positive political outcome.”

Former central bank President Noe Pino, who is advising Castro, said she would work with the private sector to boost growth in the $36 billion economy without using tax exemptions. The ruling party’s policies have left the country in such poor fiscal shape, he said, that the next government is unlikely to be able to tap global debt markets again.

“The state’s resources are very limited,” Pino said in an interview.

To contact the reporters on this story: Eric Sabo in Panama City at esabo1@bloomberg.net; Isabella Cota in San Jose, Costa Rica at icota@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net; David Papadopoulos at papadopoulos@bloomberg.net

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