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NEW YORK, March 6 (IFR) - Latin American high-grade sovereign credits were under pressure Friday morning as US Treasuries sold off in the wake of the strong US employment report.
With payroll data showing a larger-than-expected hiring number of 295,000, rate fears have once again moved to the fore as markets price in the possibility that the Fed might tighten monetary policy sooner rather than later.
Those concerns pushed sovereign debt lower Friday, with Brazil 2025s falling close to a point on the day to 95.70. Mexico 2025s were also about one point weaker at 100.20.
It was a similar story for Costa Rica's new 7.158% 2045, which has fallen to 99.50 on the rate move after hitting a high of 101.00 following yesterday's par pricing.
The dollar meanwhile rose to an 11-year high this morning against other currencies in response to the payroll data, impacting Latin American FX as well.
The Mexican peso was trading at 15.4 against the dollar this morning, marking a 3.24% decline over the last three days. The Brazilian Real has suffered a 7% decline since late February to trade today at 3.04.
Higher yields and weaker currencies spell trouble for corporate Latin America with several companies already telling investors that FX volatility has bitten into their bottom line.
"I am seeing a lot of company saying they had losses because of FX," said a trader. "This has to be a big focus for investors."
With yields on the 10-year US Treasury breaching 2.2% today, some traders are anticipating further weakness in the high-grade sovereign and corporate space.
"We are getting close to the point when there will be a rate move in the US," the trader said.
"It might not be big, but it will be significant," he said. "And I think you are seeing a repricing of EM because of that."
On the corporate side, while prices were eroding, they were still resilient enough to push spreads tighter. This comes as EM bond funds enjoyed another week of inflows, albeit in hard currency rather than local currency funds.
According to Standard Bank, EM hard currency funds saw assets under management jump another 0.9%, while EM local bonds saw AUM fall 0.2%.
"Higher US rates will also drive many EM rates higher," the bank said. "This leaves EM credit as the only asset class in EM that will continue to attract inflows supported by its hard currency denomination."
Shrinking spreads in the US high-yield market are also making EM credit look attractive, bringing further technical support to the asset class.
Peruvian state-controlled mortgage bank Fondo Mivivienda, rated BBB+ from both S&P and Fitch, has mandated Deutsche Bank and JP Morgan to organize a series of fixed-income investor meetings in Europe starting in London on Wednesday.
The borrower will move on to Amsterdam on Thursday and Paris on Friday, and the following week it will meet investors in Frankfurt on March 16.
Mexican media company TV Azteca is bringing to market a rare project bond related to the development of the Andean country's fiber optic network.
Panama has filed with the SEC to sell up to US$3.04bn in debt, raising expectations that the sovereign could soon come to the international bond market. (Reporting by Paul Kilby; Editing by Marc Carnegie)