Are investors becoming too ebullient on emerging markets once more? The warm welcome recently extended by the bond market to Ecuador — a serial defaulter — seems a good example of the triumph of hope over experience. The Latin American country has defaulted on its debt with such regularity that it repaid a bond fully and on time for the first time in its history only in 2015, the Financial Times reported.
Ecuador’s benchmark bonds soared to a six-month high after President Lenin Moreno’s government secured a $4.2 billion loan package from the International Monetary Fund, Bloomberg News reported. The aid is intended to support the OPEC nation over the next three years as it tries to curb spending and revive sluggish growth. Including the IMF package, Ecuador is set to receive more than $10 billion in loans from multilateral lenders, Moreno said Wednesday in a televised address to the nation. “Thanks to the firm decisions I have made, we are not what today is Venezuela,” Moreno said.
Prayers for a sudden return to dovish monetary policies have been answered, and now investors are living with the aftermath: a world awash with $8.6 trillion in negative-yielding debt, Bloomberg News reported. That’s one reason money managers are wading once more into the fringes of fixed-income markets across the globe. Consider the action over the past week: Serial defaulter Ecuador managed to sell $1 billion in new bonds even as the government is in talks for International Monetary Fund financing.