June 16, 2016 / 5:16 PM / 2 years ago

LatAm borrowers on hold as Brexit fears roil market

NEW YORK, June 16 (IFR) - Latin America’s primary bond markets have ground to a halt this week as fears over a possible UK exit from the European Union send bond spreads wider and stop investors from taking on risk.

Argentina’s Province of Salta and Mexican property developer GICSA are thought to be waiting for better conditions after finishing roadshows on Wednesday.

That is seen as a wise move given the state of the market.

Relatively dovish comments from Federal Reserve Chair Janet Yellen failed to lift market sentiment, as investors are focused on polls showing a majority favoring a UK exit from the EU.

“It is a completely different environment from yesterday,” said Klaus Spielkamp, head of fixed-income sales at Bulltick.

“Yesterday some people were looking to close shorts and place bets on the upside, but even they are closing positions today to stay lighter ahead of the Brexit vote.”

Yields on the 10-year US Treasury have shrunk to 1.568% for the first time since late 2012, as investors pile into safe-haven assets in preparation for potential volatility ahead.

Issuers are now deciding whether to move ahead before the vote next Thursday, or take the chance that Britain will ultimately decide to stay in Europe and print on the back of the relief rally that would likely ensue.

“It is a question of whether they are willing to pay up ahead of any potential volatility on the back of the vote next Thursday,” said a syndicate manager.

This comes after Latin American borrowers rushed to the market last week to print the largest number of deals seen in a single week this year.

Nine issuers raised US$6.3bn-equivalent across the euro, dollar and yen markets - but many of those deals are now trading well below re-offer.

A five-year from Brazilian pulp company Eldorado was spotted on Thursday at 96.75-97.25 after pricing last week at 99.008.

Conglomerate Cosan’s new 2027s were in better shape but still hovering just below re-offer at 97.75-98.25, while miner Vale’s new 2021s tumbled to 96.00 from a high of 101.00.

Aside from the poor secondary performance, printing deals will prove difficult because investors are being told to keep their powder dry until after the British referendum.

“Clients are hamstrung,” said a New York-based trader. “Many are handcuffed because of the Brexit, as they have instructions that they can’t do anything.”

That of course may spur a relief rally should the UK decide to stay in Europe, as investors return to market and open the door for a string of borrowers still in the pipeline.

Apart from the Salta and GICSA trades, several Argentina issuers are preparing deals, including sweets and biscuit company Arco, oil credit Petrobras Argentina and pulp and paper name Celulosa Argentina. (Reporting by Paul Kilby; Editing by Marc Carnegie)

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