The Big Idea
Ecuador | Respect for technicals
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
A fresh appetite for risk has helped most high yield credits to start the year. Ecuador valuations are not so misaligned with Gabon, the only outlier at double-digit yields in 7- to 10-year paper. Ecuador also benefits from unique supply and demand dynamics by relying on multilateral and local markets and only minimal programmed issuance in capital markets. These tight valuations could easily accommodate $1 billion in new issuance for debt liability operations. The official strategy includes partial multilateral guarantees to minimize the cost of financing and plans to target specific social sectors.
The favorable external conditions have broadened accessibility for high yielders with single-digit yields suggesting direct market access for debt liability transactions. The continuing high 9% yields on longer tenors do not suggest inexpensive financing; however, the economic team may favor liquidity relief on reducing the burden of the 2030 sinking fund payments. The payments beginning month end would double the annual Eurobond debt service. These payments still remain low in the context of broader debt liabilities; however, any liquidity relief is important for a country that suffers from chronic liquidity stress on a structural fiscal deficit and limited financing options.
Ecuador’s buyback provides tactical support, especially for shorter tenors. However, the sustainability of these gains still depends on the successful IMF program under fiscal consolidation. The third and fourth reviews provided breathing room on backward adjusting the fiscal targets with the yearend fiscal targets for 2025 no longer conditional performance criteria. This program flexibility extends through the September 2026 review based on a flexible monthly January target and only a more difficult performance criteria in June 2026. This should provide maximum optionality for sorting through the structural shift after the various announcement of fiscal measures from June through December last year. The IMF fourth review references some temporary and front-loaded social spending Sep-Oct 2025. However, there hasn’t yet been any breakdown on the intertemporal impact on the fiscal accounts with some temporary frontloaded spending in 2025 and maybe backloaded savings in 2026.
The early data on the full year fiscal performance shows a large central government deficit of $5.3bn versus the $4bn forecast in the fourth review for 2025. (This references the observatorio fiscal estimates through December as a leading indicator to official data only available through October). There has been an important increase in tax revenues at $928mn but the surge in spending at $2.8bn explains the deterioration from $3.1bn deficit in 2024 to $5.3bn deficit in 2025. There is no specific outlier category with higher spending across the board with a complete unwind of spending necessary to meet the ambitious $2.6bn PGE deficit target this year. This will be the important challenge with spending restraint maybe more difficult after the defeat across the popular referendum last year (governability requires larger spending).
The near-term supportive technicals should dominate with resilient external demand for high yield, prospects for debt liability operations, limited USD supply under still majority financing support from multilaterals. However, the sustainability of these tighter valuations will require still supportive external risk as well as higher conviction on the progress towards fiscal consolidation. This is why we shifted to a more conservative neutral from overweight recommendation in early December that targets mostly carry returns and the next phase dependent upon a track record of fiscal consolidation through 2026.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2026 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
