Ecuador

As you probably know, Ecuador formally defaulted on part of its debt. I guess there's a reason why it's (was) the highest-yielding debt in Latam. The way they went about it is a little wonky b/c they first announced that they would just not pay the coupon on time or maybe not at all. (If you're not a finance person: When countries or corporations put out bonds they say: "Okay, you give me a thousand bucks. I give you this bond and every six months [or year or whatever] you get a 'coupon', a fixed payment of e.g. 10 bucks [hence, fixed income.] Then at the end of out agreement, let's say ten years, I pay you back the 1000 bucks and you will have gotten your money back plus 2*10 years * $10 = $200." And that obviously implies a certain interest rate. If you miss one of those "interest payments", the coupons, you are technically defaulting on your debt.) But the coupon payment that was due was just $30 million, hardly a ton of money, even for Ecuador. Then a day later they said that they just wouldn't pay back the debt at all.

But... why did they default on the coupon first? i mean, technically, that's a default and triggers all the consequences so I'm not sure why if they are already in default they didn't just say "Eff it, we're just not gonna pay any of it back" right away.

The other wonky thing is that Ecuador claims that these particular bonds are "illegal" and so they shouldn't be on the hook for them. I don't know the actual argument but would be interested. But then one of my coworkers said that apparently Ecuador has never issued a sovereign (i.e. national, issued by the state) bond that it has not defaulted on. Really? Whaaaaat? I find that hard to believe. But I don't really know how to verify it. But isn't that crazy? Again, no wonder it is/was the highest-yielding debt in Latin America. I mean, the annualized yield on an Ecuadorian bond is north of 20%. If you could be sure to get your money back, what a crazy return would that be? But that's (obviously) just it. My friend Luther keeps saying that there are some inflation-protected Brazilian bonds that yield 20%. hmmm......