DISTRICT LINE-A Rundown from the World Bank/IMF meetings

sábado 8 de octubre de 2016 20:26 GYT

By Davide Scigliuzzo and Paul Kilby

WASHINGTON, Oct 8 (IFR) - Renewed appetite for local currency debt proved to be a consistent theme among Latin American public credit heads at the World Bank/IMF meetings in Washington over the weekend.

At a time of ultra low yields across much of the developed world, local currency debt in emerging markets is proving hard to resist for investors.

And this could be a boon for countries that have stepped up efforts to keep inflation under control and adopted prudent fiscal policies such as Russia, India, Brazil and Argentina.

"It is an old school orthodox play," Ed Al-Hussainy, a senior rates and currency analyst at Columbia Threadneedle, told IFR on the sidelines of the event. "How many times are you going to catch a transition like this?"

Increasing appetite for local bonds fits well with the debt strategy of EM sovereigns, many of which have long been trying to broaden the appeal of their local markets among foreign accounts.

That need has become even more urgent now given concerns that a normalization of interest rates in the US could cause the dollar to strenghten, making hard currency debt more expensive to service.

"We need to prepare for the time when the US Fed starts normalizing rates," Peru's Finance Minister Alfredo Thorne told IFR this week. "What we would like is to give more depth to our local currency market."

Peru took a major step in that direction in September when it issued around US$3bn equivalent of new 12-year sol-denominated bonds to finance the buyback of existing US dollar debt.   Continuación...