May 6, 2014
The region’s dollar-bond market peaked in April, but the brakes are likely to go on as problems in Eastern Europe continue and Brazil goes into World Cup mood
Supply of dollar-denominated bonds from Latin American borrowers could slow in the coming weeks market sources caution, even though they still see strong appetite and liquidity.
“It’s a bit of a witching hour. I’m kind of intrigued to see how we continue … The rally is ongoing, but if you go back in time, the second quarter has always been a bumpy quarter generally,” said a DCM banker.
The Latin American cross-border debt market boomed in April with almost 30 deals being priced. Yet global troubles, in tandem with the World Cup in Brazil could trigger a slowdown in the next few weeks.
The sweep of borrowers to hit the market last month included four sovereigns and heavyweights such as Pemex and Cemex. April’s surge in the number of borrowers followed 49 bond sales in the first three months of the year, according to Dealogic data.
Global issues that have rocked capital markets have “tended to happen” in the second quarter, the bond banker added. Last year’s taper talk is the most recent example of that. “Things could escalate and get more tense in Ukraine and we could have an escalation in the Middle East … that stuff seems to happen in the second quarter.”
Lupin Rahman, EM portfolio manager at Pimco, said that a worsening of the situation in Ukraine could impact emerging markets as a whole: “For the time being EM has not been affected negatively from the geopolitical risk in that part of the world, with some regions like LatAm even benefitting; however if the situation deteriorates we may see EM investors becoming more cautious overall " she told LatinFinance.
Some have already noticed a slowdown: “Based on how hot the market has been, and how well bid the market has been, it seems that there hasn’t been a lot of issuances in recent days. I’d have expected more,” a LatAm-focused investor said last week.
Some of the biggest borrowers in the region, including Petrobras, Pemex and the more active sovereigns including Brazil, Mexico and Colombia have already tapped the market for large sums and some of them have said they do not plan to sell more bonds in the short term. Meanwhile, a slowdown is widely expected in Brazil during the World Cup in June, and in the weeks before the October presidential election. LF