Fitch: Armenian bonds depreciate due to internal problems

Azerbaijan’s dollar bonds are outperforming Armenia’s amid a conflict in Nagorno-Karabakh, suggesting investors bet Baku with its oil and gas wealth can cope better during the crisis over the disputed enclave, Report says, citing Fitch Ratings.

Prices of bonds of both states in the Caucasus region fell when fighting erupted on September 27 over territory recognized internationally as part of Azerbaijan. However, issues by Armenia, a poorer nation per capita, have dropped further.

Since September 21, in the run-up to the conflict, Azerbaijan’s 2024 and 2029 issues are both down about 1%, while Armenia’s 2025 and 2029 issues have fallen 4.5% and 3.5%, respectively.

The price of Azeri bonds is now just 2% off peaks reached this year before taking a knock from the coronavirus crisis.

“Azeri bonds are faring better because the conflict and pandemic have less near-term downside risks,” ING Bank strategist Trieu Pham said, citing the country’s external reserves and less than $3 billion in outstanding Eurobonds.

Azerbaijan, rated BB+ by Fitch, has a sovereign wealth fund worth $43.2 billion, equivalent to about 85% of gross domestic product (GDP), providing the country with a financial buffer. Azerbaijan’s economy is expected to shrink in 2020, hurt by this year’s fall in oil prices and the coronavirus crisis. But it has a lower debt ratio.

Fitch cut Armenia’s rating to B+ this month. The agency forecast the economy would shrink 6.2% this year due to the conflict and the pandemic, while it also expected government debt to surge to 63.9% of GDP by the end of 2020.