NEW YORK, Sept 30 (IFR) - A rally in Brazilian assets improved the tone in the LatAm credit markets on Wednesday, sending spreads tighter across the region.
A rare piece of good news from Brazil - Petrobras’s decision to hike fuel prices - took the market by surprise and gave the troubled oil company’s bonds a welcome boost.
“It is not a game-changer,” said Klaus Spielkamp, head of fixed-income sales at Bulltick.
“But it is one piece of good news from the company, and that is what has been missing for quite some time.”
Other Brazilian corporates and sovereign debt rallied in sympathy, bringing out buyers and leaving short players scrambling to cover their positions.
Bank paper also made a comeback, as Banco do Brasil’s 8.5% perps ended the day bid at 81.00 after being offered at 78 on Tuesday.
Still, traders remain uncertain whether the rally in Petrobras and other Brazilian bonds has any legs, given the challenges faced by the region’s largest economy.
A hike in local diesel and gasoline prices may “modestly bolster” cashflows, but not enough to offset the effects of lower oil prices and a weaker currency, Fitch said on Wednesday.
To be sure, the rally in Petrobras appeared to be fading late in the day, with the 2024s closing around 69.24 from a high of 73.50 earlier in the day, according to Trace data.
The spike in prices may have presented the perfect opportunity for investment-grade players seeking to cut their exposure to junk-rated Petrobras.
Elsewhere, Mexico was underperforming but still closing tighter, with its five-year CDS narrowing 6bp to 176bp and the sovereign’s 2025s tightening about 10bp to a G-spread of 185bp.
A sustained rally is likely what is required to open opportunities for the region’s growing pipeline of borrowers, largely comprising Mexican issuers.
“Whether these borrowers are comfortable with concessions and spreads is a different story,” one syndicate banker told IFR.
“But assuming the tone is okay tomorrow, there may be a window ahead of payrolls (on Friday).”
Mexico’s state-owned Bancomext wrapped up roadshows last week through Bank of America Merrill Lynch and HSBC to arrange meetings with fixed-income investors ahead of a potential US dollar-denominated 144A/Reg S bond sale.
Mexican white-goods manufacturer Controladora Mabe has finished investor meetings through Barclays, Bank of America Merrill Lynch, Citigroup and JP Morgan. Ratings are BB+/BB+.
Mexican real-estate investment trust Fibra Uno has completed meetings with investors through Bank of America, Credit Suisse, HSBC and Santander.
Terrafina, another Mexican REIT, has finished meeting accounts as it markets a potential US$400m-$500m bond offering. The borrower mandated Barclays and Citigroup as lead managers, with Itau coming in as co-manager. Expected ratings are Baa3/BBB-. (Reporting by Paul Kilby; Editing by Marc Carnegie)