Debut Honduran Bonds Rally as Polls Show Tighter Election

Honduras’s debut global bonds are heading for their best monthly performance as polls show the ruling party fending off an election challenge from the wife of deposed former President Manuel Zelaya.

Yields on Honduras’s dollar bonds sold in March and due in 2024 have fallen 84 basis points, or 0.84 percentage point, this month to 9.23 percent after reaching a record 10.77 percent in September. Honduran securities returned 6.8 percent in October, outperforming the 2.8 percent average for emerging markets, according to JPMorgan Chase & Co.’s EMBIG index.

Polls in the Central American country before the Nov. 24 presidential election show former lawmaker Juan Orlando Hernandez of the National Party gaining on Xiomara Castro, who would become Honduras’s first elected female president. Investors favor Hernandez over Castro, whose husband was allied 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 may be the last public poll ahead of the vote due to Honduran election law.

Eligible Voters

Among eligible voters, Castro and Hernandez are in a statistical tie with 27 percent and 28 percent support, respectively. The survey of 1,525 people was conducted Oct. 9-15 and has a margin of error of 2.51 percentage points.

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.

Cowboy Hat

“We ask businesses to trust us, to trust Libre, we ask them not to be scared, in spite of all the negative campaigning going around we are not only going to respect property, but boost growth,” Castro told reporters in Tegucigalpa today, referring to her political party.

Zelaya, who has joined his wife at campaign rallies wearing his signature white cowboy hat, 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.

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.”

GDP Growth

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.

Honduras’s economy will probably expand 2.8 percent this year and next after average annual growth of 3.8 percent from 2010-2012, according to the International Monetary Fund. The current account deficit will widen to 9 percent of gross domestic product next year from 3.8 percent in 2009, the IMF said.

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