Mongolia Bonds a Buy for ING After Moody’s Downgrade Spurs Drop

Mongolia’s dollar bonds dropped the most in a week after Moody’s Investors Service cut the nation’s credit rating, a decline that prompted ING Groep NV to recommend buying the securities.
The yield on the government’s 5.125 percent notes due December 2022 rose 10 basis points to 7.91 percent as of 11:02 a.m. in Hong Kong, according to data compiled by Bloomberg. The premium investors demand to hold the Asian nation’s debt over similar-maturity Treasuries has widened 59 basis points this month to 536, the biggest gap since April. Mongolia’s currency, the tugrik, fell 0.3 percent to a record-low 1,841 per dollar.
Moody’s downgraded the nation yesterday by one step to B2, five levels below investment grade, citing a sharp drop in foreign reserves and expansionary polices that have fueled inflation. Reserves fell to $1.6 billion in May from $2.2 billion at the start of the year, the ratings company said. The decline reflected the drawdown of proceeds from Development Bank of Mongolia’s international bond sales and has nearly run its course, said Tim Condon, the Singapore-based head of Asian research at ING.
“We think $1.5 billion will be the floor” for the reserves, he said in a phone interview. “Mongolia will also benefit from improved sentiment toward China” as the mainland is the destination of 90 percent of its exports, he said.
China is the world’s second-biggest economy and reported this week a 7.5 percent increase in gross domestic product for the April-June period, more than the 7.4 percent gain predicted by economists in a Bloomberg survey. Citigroup Inc. and JPMorgan Chase & Co. were among banks that boosted their 2014 growth projections for China following the data.
To contact the reporter on this story: Lilian Karunungan in Singapore atlkarunungan@bloomberg.net
To contact the editors responsible for this story: James Regan at jregan19@bloomberg.netAndrew Janes
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