Pension and retirement fund managers in Costa Rica are hungry for public sector government debt. As reported by Evelyn Granados Diaz of digital news daily Costa Rica Hoy, 80 percent of holdings in the investment portfolios of pension funds are spread among bonds issued by the Ministry of the Treasury and Taxation (Hacienda in Spanish), the Central Bank, and the public electric and communications leviathan ICE.

Government bonds issued by Hacienda are currently the favorite security among fund managers. According to Revista Summa, the yield of Costa Rica’s sovereign debt securities issued earlier this year with a maturity date in 2015 is 9.54 percent.

Compared to the yield of the 10-year United States Treasury note, which is currently at historic lows of 1.76 percent, the Tico bonds seems like a good investment -although it is important to note that the credit rating assigned to Costa Rica by Standard & Poor’s is BB, or two levels below investment grade. To institutional investors and global bond traders, this rating makes our sovereign debt as attractive as that of Guatemala or Turkey, but that does not seem to discourage Tico pension fund managers.

One of the largest retirement fund operators in Costa Rica, INS Pensiones, keeps 50 percent of its portfolio invested in Hacienda bonds. In some investment advisory circles, stockpiling in one single security is asking for trouble, but Tico pension fund managers just can’t get enough of sovereign debt. In fact, the Superintendency of Pensions (SUPEN) is pushing for an amendment to a current regulation that limits pension funds to invest 65 percent of their portfolios in Hacienda and Central Bank bonds. This limit is intended to force retirement portfolios to diversify, but fund managers want a wider margin of government debt. The SUPEN would like to see the limit increased to 70 percent as a compromise.

Pension fund managers complain that since 2008 -the year that the global financial crisis raised alarms all over the world- they have few safe investment options. The domestic securities market does not have much to offer, the American bonds pay too little, and  European bonds are too risky. The sovereign debt markets over the last few years have been like a roller coaster ride, and for the time being Tico fund managers are seeking the relative safe haven of Costa Rica debt securities.