Fed minutes offer little direction for issuers
Would-be LatAm bond issuers are bracing themselves after documents released on Wednesday indicate US officials will stick to a plan to wind down QE from September
The US Federal Reserve released its July minutes Wednesday, which
were carefully scrutinized by bond market participants trying to gauge market
opportunities for September. Policy makers were "broadly comfortable"
with Chairman Ben Bernanke's plan to start reducing bond buying under its
quantitative easing (QE) program later this year if the economy improves, with
a few saying tapering might be needed soon, according to the minutes.
The broad support suggested, as well as the lack of additional
clarity on a timeline for ending QE, means upcoming economic data could tip the
“The September 6 release of August non-farm payrolls will be
critical to determine whether or not the taper begins in September or rather is
pushing off to December, as we have long contended. The Fed will also be
closely watching core PCE inflation for July, which will be released August 30,”
Bulltick said. If the payroll data dips significantly, the shop sees a tapering
announcement delayed until December, otherwise, there could be a September announcement.
“The minutes were largely non-committal, offering little to
suggest that the committee was ready to raise expectations further about
tapering in September, while also saying little to indicate that participants
did not think a September tapering would be appropriate,” Barclays said.
US Treasury bond yields reached 2.89% Wednesday. The decision
to taper would likely push those yields up further – creating volatility that
will complicate issuance for those LatAm borrowers in the pipeline. Issuers
Móviles de Chile, and the City
of Lima have recently put off issuing plans until September. Embotelladoras
tap the bond markets for acquisition financing. América Móvil – revealing Wednesday
it had bank funding in place for its potential
acquisition of KPN – could also need to return to the bond market.
High-yield issuers would be more challenged by higher rates
and volatility. Peruvians Grupo
Diamante and Pesquera Hayduk are among those monitoring conditions.LF