Buyers bet on Brazil regime change
By Will Caiger-Smith
NEW YORK, March 11 (IFR) - Investors swooped on Brazil's first sovereign bond deal since 2014 on Thursday, as the country's deepening corruption scandal bolstered expectations of a change in government.
The country took advantage of a strong rally in global credit to print a US$1.5bn due April 2026 bond at 6.125%, the most it has paid for 10-year funding since 2009.
Investors shrugged off the fact that Brazil (Ba2/BB/BB+) is now junk-rated by all three ratings agencies following a two-notch downgrade by Moody's last month, pouring in around US$6bn of orders.
The strength of the order book allowed leads Bank of America Merrill Lynch and JP Morgan to tighten pricing to 6.125% from initial thoughts of 6.5%.
That final yield implied a new-issue premium of anything from single digits to 25bp based on where Brazil's January 4.25% 2025 bonds were trading on Thursday morning.
Market participants had not expected Brazil to issue this year, as it grapples with a crippling recession and a mounting deficit.
But bankers said the typically opportunistic sovereign's timing was good, coming amid a rally in commodity prices that has helped lift Latin American bonds in recent weeks. Brazil has also benefited from a strong technical bid as investors have begun to cover their underweight positions on hopes of political change.
"The biggest risks in Brazil are political and they are tilted to the upside," said Jan Dehn, head of research at Ashmore, referring to investors' hopes that the ruling PT party will lose its grip on power, as investigations continue into some of the party's leading figures. Continuación...