The nation's bonds due in 2030 slipped 4.2 cents on the U.S. dollar to 58.8 cents, while the 2035 and 2040 notes also slid.
The race for second is very tight. Perez leads Lasso by just 15,000 votes with some 190,000 ballots yet to be counted, according to Ecuador's electoral body. Investors had been betting that the pro-Washington, pro-IMF candidate Lasso would make the second round.
“From an economic policy perspective, a run-off between Mr. Arauz and Mr. Perez would be like a beauty contest between Dracula and Frankenstein,” TPCG Valores SA's Juan Manuel Pazos and Victoria Faynbloch wrote in a report. “Even if Mr. Arauz tacks toward the center, we expect a left-leaning, domestic market minded economic policy from the next administration.”
The latest tally shows Arauz with 32.2% of the votes. Meantime, Perez has 19.8% to Lasso's 19.6%. Polls mostly predicted that Lasso would comfortably advance to the second round, so the surprising runoff between two left-wing candidates hadn't been priced in by bond investors, according to Siobhan Morden, head of Latin America fixed income strategy at Amherst Pierpont in New York.
Ecuador's Sunday vote key for the financial markets
Lasso hasn't conceded, and he could still get enough votes to advance.
Voters weren't won over by Lasso's calls for market-based solutions, and wanted stronger pledges of income redistribution, said political scientist Simon Pachano at FLACSO University in Quito. He also blundered by failing to pick a woman as his running mate, as Perez did, according to Pachano.
Voters angry at the state of the country, which is enduring one of the deepest economic contractions in the region, wanted something other than the policy continuity Lasso was offering, said Eurasia Latin America Director Risa Grais-Targow.
“It's a change election and voters are looking for something that's dramatically different than what they have today and Lasso's challenge is that he's the ultimate elite establishment candidate, he's a banker,” Grais-Targow said in a phone interview.
President Lenin Moreno, who didn't seek re-election, has approval ratings below 10%.