NEW YORK, May 13 (IFR) - Latin American credit markets were giving back some earlier gains on Wednesday as investor concerns about US Treasury volatility began to take their toll on sentiment.
Despite the release of weak US retail sales figure, the yield on the 10-year Treasury was back up at 2.28% by late afternoon, adding to the unease over the direction of US rates.
“People are skittish around rates,” said a New York based trader. “With the 10-year back near 2.30%, investors are nervous about buying duration or even 10-year paper.”
Still, prices on some Latin American debt were holding their own well. Brazil 2025s closed at a mid-market price of 98.125, up from 97.65 seen yesterday, according to Thomson Reuters data.
This is even after Moody’s warned today of increased liquidity risks in corporate Brazil.
“About a third of the Brazilian companies we reviewed have high funding risk due to weak cash coverage of short-term debt, a lack of committed credit facilities or likely low cash flow over the next one to two years,” Moody’s said.
Meanwhile, Fitch downgraded Brazilian sugar company Tonon Bioenergia to CCC from B-, warning about escalating refinancing risks ahead of a US$12m coupon payment due Thursday on its senior secured 2024s.
Those bonds were quoted at 47.125-48.875 after being bid Tuesday at 47.25, a broker said. While that is lower on the day, it is higher than the 35.875 seen on April 16 following news that the company was looking to restructure its dollar debt.
The senior unsecured 2020s were quoted at 16.625-20.125, down versus 19.75 on Monday, but up from 14.25 bid on April 15.
“Systemic risk remains high for Brazil’s sugar and ethanol (S&E) sector due to numerous defaults within the sector,” Fitch said. “Tonon has been finding it difficult to roll over its maturing obligations with new long-term loans as bank lending activity in the sector has been focused on short-term borrowings.”
In primary, LatAm Airlines cut a solitary figure as it sought to sell some US$664m of enhanced equipment trust certificates - the first such issue out of the region.
Leads are approaching accounts with a US$549m Class A bond maturing in 2029 (rated A2/A-) with initial price thoughts of 4.125%-4.25%, and a US$114m Class B bond maturing in 2025 (Baa2/BBB-) with IPTs of 4.375%-4.500%. Pricing is expected Thursday through leads Citigroup, Deutsche Bank and JP Morgan. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)