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  1. #1
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    Default Politics effect on bond trading

    Does a political issue such as congressional elections and their outcome in the DR have an effect on DR bonds trading?

  2. #2
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    political risks and uncertainties, govermental effectiveness, fiscal policy and expecected economic growth, etc., all influence a country's bond rating and are all affected by who the people elect.


    To what extent could well be negligable, in DR case, but I'm not learned enough to know... Perhaps someone else is

    edited to add: 'cost of business' too, e.g. if will be more effecient for Laifex to deal with Leonel and his party than to also have to deal with a PRD controlled congress.

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    compare the following two articles, as another example:

    ARt. 1

    ARt. 2

    ..remember what happened to DR's bond rating once Leonel was elected?

  4. #4
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    Other than the refinancing of Dominican Bonds to repay the interest to maturing Bond holders, is there any liquidity in longer term paper? I do not see them listed anywhere on Bloomberg.

  5. #5
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    Politics is part of the so called qualitative factors that rating agencies use as part of their rating process. Their models attach some numerical value to politics and this in turn is factored in in the overall country or debt rating. Politics by itself would affect the rating if a particular political outcome is wildly different from what the market expects. Case in point is the past Congressional elections in DR

    While the market outcome was for the current administration to pick up 'a few' senate seats (I guess about 10), the fact that the governing party got more seats than expected is by itself positive event and this 'positiveness' should in turn be translated into the prices (assuming the bond market as a whole is not misbehaving, like it has done in the past). On the other hand, had they secured only 3 senators (for argument's sake) the market would have been negatively surprised and prices would have behave accordingly (this is on the premised that Fernandez would have not been able to advance its reform agenda).

    One interesting insurance development is for issuers(usually Corporate) to attach what is called PRI (Political Risk Insurance) to bond issues so that this sweetener makes the debt more palatable. For example a company investing in an oil producing county may issue debt with PRI attached so that investors are protected in case the government wakes up one morning and decides to take over oil producing development (look at natural gas in South America).

    Bottom Line: Politics is always an issue that affects the rating of a country, but for the most part ratings agencies see it as ONE factor out of many.

    Note: This is my personal opinion, an should not constitute investment advice. E-mail me at my personal address if you want to develop a dialogue

  6. #6
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    Bear Stearns official report on the DR election is out:

    DomRep held congressional elections last week and preliminary results indicate that President Fernandez's PLD party did much better than we had expected. While pre-election polls had indicated that the ruling PLD would significantly increase its representation and become the single largest party in congress, they did not, however, show that it would win an outright majority. But the evidence at hand suggests otherwise. The PLD appears to have easily defeated in both the Senate and the Chamber of Deputies a coalition formed by the PRD and the PRSC, the country's second- and third-largest parties, which came together as part of a concerted effort to improve their electoral chances against the PLD. We believe that by giving it a stronger mandate a PLD majority in congress would enhance the governability prospects of the Fernandez administration as it enters the second half of its term. This, in turn, should improve the government's likelihood of making significant progress on its economic and institutional reform agenda, which seeks to modernize DomRep's business environment and promote foreign investment in the country by strengthening state institutions, at least until campaigning for the 2008 presidential election heats up and makes DomRep's political climate less amenable. Moreover, we believe that the PLD's electoral victory, which we view as a sort of referendum on Fernandez's presidency, should help the government implement the legislative framework necessary to enter DR-CAFTA while keeping any ensuing fiscal imbalances in check. Accordingly, we view the outcome of the May 16 legislative election in DomRep as positive for the credit.

    The good political news is coming at a time when the Dominican economy continues to deliver better-than-expected results. Real GDP expanded by a whopping 12.6% in the first quarter of the year, driven by the construction, communications, financial services and the commerce and transportation sectors. Meanwhile, foreign direct investment (FDI) was up by 6% during the period to top US$245 million, and inflation for the quarter was only 1.5%, putting it right on track to meet the 5%-7% target for the year as a whole. Net international reserves currently stand at US$1.6 billion, their highest recorded level ever. Lastly, after appreciating by more than 6% during the first quarter, the Dominican peso has remained remarkably stable and continues to trade at around 32.5 pesos per dollar.

    DomRep's exceptional economic performance and brighter political prospects underpin the outperformance of its bonds, which have returned almost 5% so far this year, compared with the much more subdued 0.24% returned by our BSEMIX sovereign index and the 0.66% returned by its Latin American component. We continue to like DomRep's fundamental credit story. We currently rate the bonds outperform.

    Franco Uccelli
    561-672-4780

  7. #7
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    Tamborista, apart from the bonds exchanged last year in the restructuring, the DR has a Brady bond with a 2024 maturity date and a global bond (issued in 1Q06) with a maturity date of 2027. The outstanding sov. bonds mature as follows:

    DR Float 8/30/2009 - Brady
    DR 9.040 1/23/2013 - Global Issue
    DR 9.040 1/23/2018 - Global Issue
    DR 9.500 9/27/2006 - Global Issue (those who did not entered in the exchange)
    DR 9.500 9/27/2011 - Global Issue (those who did not entered in the exchange)

    Hope this helps.

    Note: This is my personal opinion, an should not constitute investment advice. E-mail me at my personal address if you want to develop a dialogue

  8. #8
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    Do these issues TRADE?

    Not everybody holds these from Auction until maturity.
    What marketplace do these exchange hands, I could not find any of them listed on Bloomberg.

    I have seen them listed on the Central Bank Website, but was curious if there was any kind of an aftermarket.

  9. #9
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    Tamborista

    These issues trade mostly in the U.S. According to what I've been able to experience, little or not sovereign debt is traded on a secondary market in The Dominican Republic (You could check with the local stock exchange and find out if they have some sort of settlement mechanism for this debt. Also, local banks may have banking relationships with US broker dealers which may given them access to this type of debt.

    The information I posted before is in Bloomberg. Forward me you e-mail so I can send you details of how to access this info in Bloomberg. Regards.


    Note: This is my personal opinion, an should not constitute investment advice. E-mail me at my personal address if you want to develop a dialogue.

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