June 27, 2016 / 2:52 PM / 2 years ago

Bankers hold out hope for renewed LatAm bond issuance

NEW YORK, June 27 (IFR) - Bankers don’t discount the possibility of primary activity in Latin America this week even as global markets tumbled on Monday following the UK’s surprise vote to exit the European Union.

The knock-on impact from Thursday’s referendum spilled over into the US markets on Monday with the S&P 500 slipping 1% at the open and a flight-to-safety bid pushing the yield on the 10-year Treasury to 1.469%.

The reaction in Latin America has been relatively muted however, with traders reporting light activity and even some buying at the margins despite oil extending losses.

“In the corporate space you have hardly seen any reaction to Brexit,” said a London-based investor.

The new 2026s issued by Brazilian oil company Petrobras were about half a point lower at 99, while miner Vale’s 2021s had also made a similar drop to 98.

“Things are wider but it is very quiet,” said a New York-based trader. “So far we haven’t seen any redemptions and even some buying.”

The region’s visible pipeline has been steadily growing following what has essentially been a two-week drought in new issuance.

Argentine confectionary company Arcor is wrapping up roadshows Tuesday, while the Province of Salta and Mexican real estate developer Grupo GICSA both finished investor meetings last week but held off ahead of the UK referendum on EU membership.

A string of Argentine issuers meanwhile are lining up to access the capital markets, including pulp credit Celulosa Argentina, Petrobras Argentina, and utility Pampa Energia.

For now, syndicate desks and borrowers are assessing execution risks amid heightened volatility but spy opportunities as yields on US Treasuries hit close to a four-year low.

“Treasuries are at levels that are attractive to borrowers but they will have to pay concessions,” said a syndicate manager.

“I think the (primary) market will open sooner rather than later. Lower oil prices is more of an issue for EM credits (than Brexit).”

But despite the resilience of Latin America’s debt market, some investors were cautious on expectations that more downside is on the way.

“Even if you argue that the UK doesn’t have strong ties with Latin America, it has caused greater uncertainty,” said the London-based investor.

“People will be cautious about participating in new issues. I don’t have a valid reference point at the moment.” (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)

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