Ecuador sovereign bond prices tumbled in otherwise deathly quiet Friday trading as President Lucio Gutierrez' political and economic headaches intensified to a migraine that not even a record-breaking oil price rally is soothing.
Ecuador returns on the JP Morgan Emerging Market Bond Index Plus fell 2.68 percent as the wider market traded flat with traders heading home early for a long weekend.
US markets close on Monday for the Memorial Day holiday. Gutierrez is battling to pass a reform package in Congress he hopes will convince the International Monetary Fund to grant a new loan agreement, but parliament is stacked against him.
Gutierrez told Reuters in an interview in Mexico late on Thursday that Ecuador was close to getting the reforms through Congress, but some investors wonder whether he will even hold on to power long enough to start the process.
"It appears that Gutierrez's days are numbered," wrote HSBC securities analyst Vitali Meschoulam, noting that opposition calls for the retired colonel's resignation were mounting.
IDEAglobal Ecuador analyst Alberto Bernal said the IMF approval was still a "50-50 issue."
Ecuador has an extremely segmented political class that has historically made it very difficult to pass reforms. High-yielding Ecuador exemplifies the emerging bond market's volatility and the risks involved in playing it.
Ecuador bonds gave total returns above 100 percent last year during the market boom but they have fallen nearly 4 percent this month alone amid investor worries about a US interest rake hike and concerns over local political "noise."
Investors are doubly concerned by Lucio Gutierrez's sticky political position amid high oil prices that should be bolstering his position at the crude-exporting nation's helm.