The Big Idea
Honduras | ‘BB’ valuation alignment
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With tight valuations across emerging markets, it’s time to look for mispricings. Honduras’ Eurobond curve trades well inside The Bahamas’ despite Honduras’ split B1/BB- ratings and Moody’s recent reaffirmation of its B1. The valuations just might reflect hopes that an inaugural Fitch rating would lift Honduras to a composite BB-/BB-. Recent reviews also underscore good IMF relations and expectations of continued support for structural reforms. A successful legislative coalition and a commitment to renew the IMF program by year-end could drive valuations still tighter.
Finding a good relative value benchmark is difficult because Honduras offers a limited supply of sovereigns and enjoys core index demand. These technical factors support tighter valuations than The Bahamas’ and only a small premium to Guatemala. The split B1/BB- ratings may also understate upside potential. Honduras could follow The Bahamas by seeking a higher inaugural Fitch rating to offset Moody’s inactive rating.
Moody’s recently reaffirmed its B1 rating, unchanged for almost 10 years. By contrast, S&P revised the outlook on its BB- rating to neutral from negative in March 2026. Moody’s B1 rating sits at the bottom of a Ba2-B1 range because undefined “susceptibility to event risk” pulls a baa3 government financial strength score down to B1 overall. This negative model rating bias is similar to Guatemala with a penalty on medium-term risks despite the stable credit ratings and historically low vulnerability to shocks. It’s not clear what specific event risks would still weigh on the low B1 rating and offset the investment grade repayment metrics.
Moody’s stable outlook on the low B1 rating through President Nasry Asfura’s term appears inconsistent with its assumption that Honduras will meet targets under the IMF’s Extended Fund Facility and Extended Credit Facility programs. An upgrade would require better investment and growth prospects, stronger institutions and governance, and sustained improvement in the monetary and economic policy framework. That sounds like a multiyear process extending into the next election cycle. It raises a question: Would a successful IMF program under the Asfura administration bring no change to the B1 rating?
Honduras should broaden its rating-agency relationships to create opportunities for more competitive — and potentially higher — ratings. The Bahamas used this strategy last year, quickly aligning with composite BB-/BB- ratings from Fitch and S&P in 2025 and a Ba3 rating in 2026. Additional agency coverage could produce a more favorable inaugural rating assessment that recognizes the reform momentum and aligns with the market-implied BB- valuation.
The political transition should strengthen IMF relations and broaden the legislative coalition. The IMF approved its fourth and fifth program reviews in June 2026. The next priorities are meeting 11 of 17 unmet structural benchmarks and renewing the program after it expires this year. Finance Minister Christian Hernandez confirmed that six measures have already been completed over the past few months with another five or six targeted by yearend. Stronger U.S. diplomatic relations should help advance critical anti-money laundering and counterterrorism financing legislation already approved in Guatemala and El Salvador. The approval of the beneficial ownership law was approved with next focus on the AML/transparency legislation (prior to FAFT evaluation) as well as final approval of the electricity system law and continued energy sector reform.
The Asfura administration should bring renewed policy momentum, greater political capital and a stronger commitment to IMF relations. Honduras has been “a long-term user of Fund resources” reflecting decades of partnership with the IMF. Hernandez said the government plans to negotiate a new three-year program through 2029 at the next review in October. With fiscal deficits at 1% of GDP, technical assistance matters more than financing.
IMF conditions reinforce political consensus and advance the reform agenda, helping explain the long partnership across governments with different ideologies. That support could sustain positive credit momentum and a full move into the BB category, lowering market beta and narrowing the spread to higher-rated peers such as Guatemala. Given the steep Eurobond curve, we prefer the greater liquidity and premium of longer tenors. The IMF staff report does not project additional Eurobond issuance until 2030.
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