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Ecuador Bonds Return 41% on Hopes of End to Political Chaos

By Zijia Song

June 12, 2025 at 3:30 PM GMT+2

Updated on 

June 12, 2025 at 7:19 PM GMT+2

Takeaways NEW

• Ecuador's bonds have reached a three-year high due to optimism about the country's exit from political chaos and economic stagnation under re-elected President Daniel Noboa.

  Summary by Bloomberg AI

• The government's announcement of subsidy cuts, tax reforms, and plans to issue dollar bonds in 2026 guaranteed by multilateral lenders has contributed to the bonds' surge.

  Summary by Bloomberg AI

• Despite the optimism, some investors remain cautious due to the country's history of violence and sovereign defaults, and the need for Noboa to deliver on fiscal consolidation and reform to sustain the bonds' gains.

  Summary by Bloomberg AI

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Optimism that Ecuador is finally exiting years of political chaos and economic stagnation under the recently re-elected President Daniel Noboa sent its bonds to a three-year high, even as the country remains mired in violence.

The debt, which surged on Noboa’s win in April, extended gains this month after the government announced subsidy cuts and tax reforms, as well as plans to issue dollar bonds in 2026 guaranteed by multilateral lenders. Notes climbed across the curve Thursday after the country unlocked additional funding from the International Monetary Fund. They’ve handed investors a whopping 41% return this quarter, the best performance in emerging markets, according to data compiled by Bloomberg.

Money managers are betting that the 37-year-old Noboa’s willingness to pay back debt and ability to skirt a near-term default will bring further gains in the South American country’s $15 billion of dollar bonds. Notes due in 2035 still trade at just 70 cents on the dollar, even after soaring 26 cents since the April election, with a yield of 13%.

“Their recent signals on fiscal discipline and multilateral backing make it one of the more compelling relative-value stories in Latin America right now,” said Haris Khurshid, chief investment officer at Karobaar Capital LP. “Their politics look stronger and the multilateral engagement feels more credible.”

The spread on the sovereign notes over US Treasuries has more than halved this quarter to 862 basis points, bringing them out of distressed territory for only the second time in three years, JPMorgan Chase & Co. data show.

Global Backing

With about $810 million in bond amortizations in 2026 starting as early as January, regaining market access with the backing of multilateral lenders will be crucial for Ecuador to plug its financing gap, according to Anthony Kettle, senior portfolio manager at RBC BlueBay Asset Management. The country agreed a 48-month, $4.4 billion program with the International Monetary Fund last year and stands to obtain an additional $1 billion in financial assistance following an accord this week.

“When you’ve got a market-friendly government who’s able to work with the IMF and get investors on their side, then financing avenues can open up,” Kettle said. “That’s quite positive.”

Political stability has improved after Noboa gained a working majority in the National Assembly. In 2021, his predecessor — conservative Guillermo Lasso — obtained only a dozen legislative seats, a weakness that ultimately doomed his administration and led to the snap elections that brought Noboa to power in November 2023.

Now, the president’s Democratic National Action party (ADN) has won 66 seats in the 151-member, unicameral congress, and has obtained majorities of between 77 and 84 votes in initial debates.

Left-wing Citizen Revolution, which also started with 66 legislators, has already lost three of them amid internal conflicts, and ADN has sidelined it from any positions of relevance in the Assembly. That, combined with the ruling party’s control of key legislative commissions, might allow Noboa to pass reforms to achieve the fiscal consolidation required by the IMF program.

‘Still Nervous’

Still, Kettle says the bonds are gaining on short-term market optimism rather than faith in Noboa’s ability to execute a long-term economic turnaround. With a yield of around 13-15%, securities are trading as if the market expects a restructuring at some point in the future, he added.

That’s not surprising given the country’s history of violence and roughly a dozen sovereign defaults. Many remember the chaos both on the ground and in the bond market in 2023 following a failed referendum by Lasso, a snap election and the shocking assassination of a presidential candidate.

Daniel Noboa, Ecuador’s president, right, stands with Niels Olsen, president of the National Assembly of Ecuador, during an inauguration ceremony at the National Assembly in Quito, Ecuador, on May 24, 2025.Photographer: David Diaz Arcos/Bloomberg

The country remains wracked by violence with 3,087 murders in the first quarter, up about 58% from the year earlier, according to data from the interior ministry.

Read More: Why Ecuador Is Erupting With Narco Gang Violence: QuickTake

“I’m still nervous” about the sustainability of Noboa’s political capital, said Tellimer analyst Geronimo Mansutti, who cautioned that the alliance with some Indigenous groups may collapse. “But good on Noboa for getting them on board for the time being. It does provide stability.”

Yields on the notes can fall to around 11-12% and tighten even more if the government delivers on fiscal consolidation and reform, according to Ricardo Penfold, managing director at Seaport Global.

“With a strong current account, multilateral engagement, and the bulk of the adjustment already done, it would be a shame if the government wasted this opportunity to turn Ecuador around,” said Penfold.

— With assistance from Stephan Kueffner and Maria Elena Vizcaino

(Updates with Thursday’s bond and spread moves starting in second paragrah