NEW YORK, March 25 (IFR) - Brazil’s Petrobras was leading LatAm credit markets higher Wednesday on hopes that the oil company will soon release audited results and avoid a breach of bond covenants.
The region’s debt markets were again grinding tighter, continuing a rally sparked by the Federal Reserve’s more dovish tone on rate hikes last week.
Higher oil prices and shrinking US Treasury yields were also providing some support. The yield on the 10-year US Treasury fell to 1.88% on weaker economic data.
Debt issued by Colombia, one of the sovereigns more vulnerable to oil price declines, has also watched its recently tapped 5% 2045 soar in the secondary.
Those bonds were quoted around 102.90 Wednesday morning, marking a good three-point jump since those bonds were reopened on Monday.
Meanwhile Petrobras bonds were reversing yesterday’s losses on news that the company had reached an agreement with the SEC and local regulators over how to calculate corruption losses.
The company’s 2016s and 2024s were being quoted about 10bp tighter at 620bp-610bp and 530bp-520bp, respectively.
The agreement, reported by local newspaper O Estado Sao Paulo, has raised hopes the company will release delayed unaudited results before April 30 deadline set by the SEC.
The release of results should provide Petrobras with a reprieve from the possible threat of another downgrade to junk after Moody’s demoted it to sub-investment grade last month.
S&P earlier this week revised the outlook on Petrobras’s BBB- rating to negative.
“The only issue that anyone cares about is whether the government will support Petrobras and if there will be a second downgrade that will force holders to sell bonds,” said a New York-based trader.
While the news has brought some well-needed relief to buyside accounts concerned about a possible covenant breach, market players are bracing for more volatility in the Brazilian oil space.
“There is a credit crunch in (the Brazilian oil sector) and corporates are only starting to feel the pain,” said Jorge Piedrahita, CEO of broker Torino Capital.
This comes as Colombian telco ColTel approaches the market with a rare US dollar-denominated hybrid perp. Leads released guidance at 8.50%-8.75% ahead of expected pricing today.
In Peru, Mexican media company TV Azteca is expected to bring to market a project bond related to the development of Peru’s fiber optic network as soon as this week. (Reporting by Paul Kilby; Editing by Marc Carnegie)