Nomura Favors Dominican Republic Debt Over El Salvador
(Corrects to say investors should switch into Dominican Republic bonds and out of El Salvador debt in second paragraph of story originally published Jan. 23)
Nomura Securities Inc. recommends buying Dominican Republic’s dollar bonds and selling securities from El Salvador as the Caribbean country limits spending to qualify for funding from the International Monetary Fund.
Boris Segura, a New York-based strategist, advised investors to switch into the Dominican Republic’s dollar bonds due in 2021 and out of El Salvador bonds due in 2019, as the yield gap between the securities may narrow.
Dominican Republic “authorities are likely to be careful about putting further pressure on the external accounts by running a lax fiscal policy in coming months,” Segura wrote in a note to clients today.
The Dominican Republic has to reduce its fiscal deficit to qualify for lending from the IMF, Segura said. Nomura forecasts the fiscal deficit was 2.8 percent of gross domestic product in 2011, compared with a 1.6 percent target set by the IMF.
The yield on the 7.5 percent bonds from the Dominican Republic fell 23 basis points, or 0.23 percentage points to 7.39 percent, the lowest in two months, at 3:33 p.m. New York time, according to data compiled by Bloomberg. The yield on El Salvador’s notes fell one basis point to 6.09 percent.
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