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By Will Caiger-Smith
NEW YORK, March 10 (IFR) - Brazil is set to raise US$1.5bn on Thursday from its first US dollar bond sale since 2014 as the indictment of the former president bolstered sentiment about the country’s war on corruption.
Investors shrugged off the fact that the sovereign was downgraded to junk just weeks ago, pouring more than US$5bn of orders into the deal, a banker close to the trade told IFR.
That allowed leads to tighten pricing on the 10-year trade to 6.125% at launch from IPTs of 6.5% area - offering flat to 22.5bp in new issue concessions compared to Brazil’s outstanding January 2025s seen anywhere between 5.9%-6.1%, said bankers and investors.
The surprise deal comes amid renewed hopes of a change in Brazil’s government, which has been embroiled in a corruption scandal for much of the last two years.
“The risk premium across the curve has decreased,” said an emerging markets analyst.
The yield on the 2025s was 7.2% on February 12, according to Thomson Reuters data.
Market players said the sovereign was likely trying to set a new benchmark that might help Brazilian corporates, hampered by the corruption scandal, to return to the debt markets.
But the buyside is still looking for a decent pick-up on the trade.
“The market is pretty much closed to Brazilian corporates at this time, so the sovereign wants to make sure there’s a reference deal,” said Sean Newman, senior emerging markets portfolio manager at Invesco.
“If [the new bond] comes inside 6.25% we would not find it attractive,” he said.
Bookrunners Bank of America Merrill Lynch and JP Morgan are expected to price the deal later on Thursday.
Former president Luiz Inacio Lula da Silva was indicted Wednesday on corruption charges, and the opposition is hoping to force current President Dilma Rousseff out of office. (Reporting by Will Caiger-Smith; Editing by Marc Carnegie and Shankar Ramakrishnan)