Liquidity boom for LatAm as borrowers dive in
Bond investors are rushing for increasingly lower-rated deals from Latin America
A surge of demand from fixed-income investors is drawing
increasing numbers of Latin American companies and sovereigns
to the bond market.
High grade borrowers including América Móvil and
the Republic of Uruguay, and sub-investment grade issuers like
Marfrig, have rushed to market amid conducive conditions.
A further liquidity push by the European Central Bank announced
last week, as well as a bid by issuers to secure funding before
a summer slow-down, are said to be among the drivers.
Spreads on emerging market credits tightened last week after
the ECB announced a new liquidity program and US employment
data was reported stable, Siobhan Morden, head of Latin America
strategy at Jefferies, said in a research note on Monday. She
also pointed to
record inflows into EM bond funds.
"The strong inflows and only moderate debt issuance dominates
over tight valuations," wrote Morden. "The country specific
factors have been less influential against global liquidity and
appetite for high yield and high beta."
||Markets shine on emerging market
borrowers like Uruguay.
Source: Pablo Viojo
Republic of Uruguay caught attention on Tuesday when it
tapped the long end of the curve, selling a $2bn bond that
matures in 2050. The sovereign borrower matched the new issue
with a tender offer, switching some short dated paper into
But investors' craving for yield means they are keen on bond
sales rated lower than the triple-B sovereign.
Marfrig (B2/B/B) took advantage of the conditions to sell
an $850m bond on Tuesday. Investors scrambled for the debt,
placing orders of around $5bn.
América Móvil grabbed its chance last week to
return to its global-peso program. The instruments are
rated single-A but create currency risk for investors with
hard-currency portfolios. The borrower had been forced to
abandon the global-peso program last year amid market troubles.
A recent study from the ECM suggested that emerging market
borrowers would have issued about half as much as they have, if
developed markets had not embarked on a quantitative easing
drive, noted analysts at Barclays. The proportion of new
issuance to the asset class has also been much higher in
emerging markets than developed markets, the analysts said.
Yet there is little chance that a debt bubble is forming,
"We find little evidence that QE and near-zero policy rates in
developed markets have created an EM credit bubble," analysts
said on Friday.
"Although select pressure points may emerge - for example, in
Africa or some corporates in the extractive sector - we do not
think that issuers have taken on too much debt at too low
spreads, which would necessarily result in a large correction
and rising defaults when the policy outlook changes."