Fiscal Deficit Takes a Toll on Costa Rica

The risk premium demanded by investors for the Costa Rican international bond due in 2023 rose from 2.10% to 2.56% between June and September 2014.

Wednesday, September 10, 2014

Investors could be moving towards a degradation of the sovereign rating of the country, a possibility already suggested by Fitch rating agency.

An article on Nacion.com reports that "... Since last June, the extra rate of return that foreign savers demand for Costa Rican Government's securities in respect to United States Treasuries (so-called risk premium or margin) has gone. "

Adriana Rodriguez, head of strategy at Aldesa, noted that "... This is happening because international markets are ahead of events and investors do not need to see the greater risk signified by a sovereign downgrade in order to realize that Costa Rican bonds have become riskier."

Meanwhile Carolina Martínez Gómez, manager of Investment Portfolios at Lafise Bank, said: "The market has been discounting the possibility of a decrease in the risk rating of Costa Rica. If you look at other bonds with similarly rated risk, there is a greater spread (margin) in Costa Rican bonds, suggesting a higher risk premium. "

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