Liability management: Convexity breaks Panama’s bonds

Pity Panama, whose attempts to execute elegant liability management transactions have not gone entirely to plan.

Take the bond exchange, which Panama did in mid-January. The country’s debt was not trading well: there were a large number of rather illiquid bonds, most of which had been issued at high interest rates and were therefore trading unhappily well above par. With Argentina fresh in their memory, investors hate buying emerging market debt above par: they know that any restructuring is likely to be based on par value.