Ecuador's bonds expected to slide after election stalemate

By Marc Jones

LONDON, Feb 10 (Reuters) - Ecuador's government bonds are expected to slide when they resume trading on Monday, with the country now facing two months of significant uncertainty after its presidential election failed to produce a winner in the first round of voting.

Incumbent Daniel Noboa and his main challenger, the leftist Luisa Gonzalez, each secured around 44% of Sunday's vote, the latest numbers show, meaning the race now goes to a runoff on April 13.

Bond market brokers were predicting falls of around 3 cents, or roughly 5%, for Ecuador's main 2030, 2035 and 2040 sovereign bonds in pre-market calls, as analysts also flagged the uncertainty now in store in Quito.

"We hold to our overweight in Ecuador but acknowledge the market will likely initially correct on the perception of more binary risk," JPMorgan said in a note.

Noboa's efforts to tackle Ecuador's violent drug gangs and long-standing debt strains mean he is seen as the "market's favoured candidate", Graham Stock, a senior emerging market strategist at BlueBay explained.

"It is certainly a disappointing result for the market," Stock said, adding that the near 90% of the vote shared by Noboa and Gonzalez meant the second round could be a real "scramble" for the remaining voters.

The third place candidate was Leonidas Iza, the indigenous leader of the Pachakutik party who obtained 4.8% of Sunday's first round vote and has historically been critical of the government's treatment of the environment.

Ecuador's bonds had rallied in the run up to Sunday's vote after the pre-election polls had given Noboa a clear lead.

The country's debt problems mean it has been locked out of international capital markets in the last couple of years, although it recently sealed its second high-profile debt-for-nature swap with the backing of the Inter-American Development Bank and the U.S. government's International Development Finance Corporate (DFC).