“Year of windows” for bonds
Companies and sovereigns face a challenging scenario in the next few months to raise funds at good prices
Latin American borrowers are waiting on the sidelines to
take advantage of windows of opportunity ahead as the US
Federal Reserve winds down quantitative easing and hints at an
eventual rise in interest rates later this year.
Activity in the Latin American origination market was
sluggish in the first few months of 2014 as strong volatility
in Emerging Markets as a whole, weak investor sentiment and
higher rates compared to last year pushed potential borrowers
to the sidelines. But many have rushed to the market in recent
weeks in a bid to obtain funds ahead of an expected raise in US
What remains of 2014 and the first half of 2015 will
probably be a "year of windows", Ricardo Navarro, Itau's head
of LatAm DCM, told LatinFinance in an interview last week. A
big window may open in June or July this year that would lead
to a rally of new issuances, he said. Potential issuers were
concerned about the outlook for the second half of the year,
because they face the unwinding of QE in the US and the
possibility that the Fed may raise rates.
"That may trigger a window where people may see US
Treasuries at 2.75%. If you see the improvement of sentiment
toward emerging markets that you've seen over the past week,
you may see spreads compressing another 20bp or 30bp," he said.
"I think there you're talking rates that are attractive for
people again. And I think that if you get two or three months
of that stable environment ahead of the Fed raising rates, I
think that will get people excited," he said.
Marzo Bernardi, executive director at Western Asset
Management said the market was anticipating a faster hike in
rates than was likely and he forecast that the end of tampering
will not have a huge impact on pricing.
"What's being communicated is that by end of 2015 probably
you're going to see 1% rates and by the end of 2016, 2.25%,"
LatinFinance's annual IDB Breakfast Roundtable last
"When you look at the price of the Eurodollar market today,
it's pricing a little bit over that … Whatever's going
to happen with China and for emerging markets and for the US
economies, how the growth perspective is going to unfold, I
think that's going to be the driver, for pricing for emerging
markets," he said.
Meanwhile, other noise and political uncertainty toward the
end of 2014 and the first half of 2015 may complicate the
scenario for potential issuers. "You have the World Cup, you
have elections in Brazil, elections next year in Argentina,
elections in Colombia, some political noise in Peru. I think
the political headwinds are there but I think you'll find
gaps," said Navarro.