12 de mayo de 2015 / 21:15 / en 3 años

Rate volatility sends LatAm debt prices lower

NEW YORK, May 12 (IFR) - Latin American debt prices ended lower on Tuesday on the back of continued volatility in US Treasuries. Yields on the 10-year hit 2.37% - their highest levels since mid-November - before settling down to 2.25% later in the session.

Sovereign bonds reacted to these sharp Treasury swings with Brazil’s 2025s quoted at 97.50-98.80 or much lower than the 101.125 quoted in late April. Spreads on these bonds were about 12bp wider at 230bp over, one trader said.

Petrobras bonds were also inching wider, albeit not as dramatically as the sovereign, with the 2024s closing at around 419bp-410bp. This comes on the back of news that the embattled oil company was considering a foray in the local bond markets to raise R$3bn plus (US$983m).

“Everything is better offered. That’s for sure,” said a trader.

Some corporate credits, however, remain resilient in the face of the sell-off in Treasuries, with Jose Cuervo’s new 10-year bond ending flat at 98.70-99.00 or 165bp-161bp over.

Still, uncertainty about rate movements is likely to keep borrowers sidelined for now.

“I don’t think the market will be taking any new issues, not with this volatility,” said the trader. “Whoever is planning to (come to market) should probably wait for a better moment.”

For now a lack of supply and outflows have helped put a floor under debt prices in Latin America, but spreads could widen should corporate Brazil finally return to market in force.

“Demand in the primary markets have been driven by the favorable supply-demand imbalance, but that could change drastically if more Brazilian corporates come,” said a senior banker.

Bankers said borrowers are now simply waiting for more stable conditions.

“Before the market was closed (for Brazilian issuers),” said a Sao Paulo based banker. “We have mandates in euros and dollars. Treasury volatility may impact pricing but the market is there. It is now a matter of timing.”

Meanwhile, investors continue to see value in Brazil, which looks cheap to other credit markets in the region. “It is a good time to buy Brazil,” said an EM dedicated investor. “From a valuation perspective it’s the best place to be.”


LatAm Airlines was wrapping up US roadshows on Tuesday ahead of a potential sale of enhanced equipment trust certificates (EETCs) through leads Citigroup, Deutsche Bank and JP Morgan, said a source. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)

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