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Honduran Bonds Rally Most in Four Months on Election

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Nov. 26 (Bloomberg) -- Honduras’s debut global bonds jumped the most in four months after the country’s electoral tribunal said Juan Orlando Hernandez of the ruling National Party had an insurmountable lead in the presidential election.

Yields on the Central American nation’s 2024 notes fell 51 basis points, or 0.51 percentage point, to 8.67 percent. The bonds have returned 5.2 percent this month, compared with a 3 percent decline in Latin American dollar debt, according to JPMorgan Chase & Co.’s EMBIG index.

Honduran bonds have rallied as investors bet Hernandez, a 45-year-old lawyer and former head of Congress, has the best chance to reach an agreement with the International Monetary Fund to aid the $19 billion economy, said Carl Ross, a managing director at brokerage Oppenheimer & Co. in Atlanta.

“Then it’s very possible that Honduras can get on a better economic track,” Ross said in a phone interview. “I think you could see another rally under that positive scenario.”

With about 68 percent of precincts reporting, the country’s electoral tribunal said that Hernandez’s 34 percent support in the Nov. 24 election is “irreversible.” Xiomara Castro, the wife of ousted former President Manuel Zelaya, is disputing the partial results that show her with 29 percent. There is no second round, so whoever gets the most votes will succeed President Porfirio Lobo on Jan. 27.

No Final Results

About 800 students supporting Castro blocked roads and confronted police in front of the National University in the capital, Tegucigalpa, today, AFP reported.

David Matamoros, the head of the Honduras electoral tribunal, told reporters yesterday that votes are still being counted and officials can’t declare a winner or loser after technical problems stalled the vote count. No estimate has been given on when final results, which include the make up of a new Congress, will be given.

Honduras’s next president will face an economy recovering from the impact of a 2009 coup against Zelaya and a homicide rate that has made it the most violent nation in the world, according to the United Nations.

The economy contracted 2.4 percent as Zelaya’s ouster prompted international condemnation. Growth has averaged 3.2 percent per year since, less than the 5.7 percent average in the four years before the coup, according to IMF data. Economic activity rose 0.8 percent in September compared with a year earlier. About 61 percent of the population lives in poverty, according to the World Bank.

IMF Program

Castro advisers, including former central bank President Noe Pino, rebutted criticism that she wouldn’t be market-friendly. That may not have been enough to convince investors, Ross said.

“Although Castro made some noise about going to the IMF, Hernandez has a greater likelihood of doing that and that’s what the investor base is looking for right now,” Ross said.

Zelaya yesterday said he didn’t trust government institutions and that the Libre party’s exit polls showed a Castro victory. Castro herself hasn’t spoken publicly since declaring herself the winner before official results were available Nov. 24. On her Facebook page today, Castro said she’ll discuss the election results on Nov. 29.

Calls and e-mails by Bloomberg News seeking comment from Castro’s Libre party weren’t returned.

Hernandez said on his website today that he is assembling a transition team to recommend priorities for the incoming government and vowed to fight corruption. He said after polls closed that voters wanted to put the tumult of the 2009 coup behind them. A former head of Congress, Hernandez received an MBA from the State University of New York at Albany.

Homicide Rate

Regional leaders from Panama and Costa Rica have called to congratulate Hernandez, as did Nicaraguan President Daniel Ortega, who supported Zelaya during the coup. Lobo visited Hernandez today to offer his support.

Fueled by drug gangs with ties to Mexican cartels, Honduras has a murder rate of more than 80 per 100,000 inhabitants, the highest in the world, according to the UN. The U.S. State Department estimated that last year about 90 percent of all cocaine smuggling flights departing South America for the U.S. first land in Honduras, where illegal airstrips abound in poorly patrolled parts of the country.

Hernandez has backed plans by Lobo to deploy 4,000 military police and to require drug and lie-detector testing throughout the Honduran police and justice system. Castro said the government has lost control of the streets and that she would emphasize community-based policing.

Record Turnout

As the election dispute enters its third day, international observers including those from the Organization of American States and the European Union said voting was peaceful and transparent amid record turnout in the country of 8.3 million people. The OAS said representatives of the major political parties were present at 95 percent of the voting locations they observed.

Ulrike Lunacek, the head of EU observers mission, called on the election tribunal to investigate any claims of fraud.

“The accusations should be investigated and not just remain as accusations,” Lunacek said in a Nov. 25 phone interview. “Hopefully this will be resolved in the peaceful climate that we have now.”

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; Andre Soliani at asoliani@bloomberg.net

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