LatAm bonds set for September rebound

LatAm bonds set for September rebound

Sales of new bonds from Latin America are expected to rebound in September, while trading levels on US Treasury bonds will likely determine credit supply after that, market participants say.
“The next couple of weeks should be very slow,” said a DCM banker. “It’s when most people are on vacation. I think September may be a little bit busy given that there’s been somewhat of a sell-off.”

  Bovespa Stock Exchange (Rafael Matsunaga)   

Bankers attributed a slight dampening in bond prices across emerging markets in recent weeks to profit-taking after an extended rally: “But I don’t think that the deterioration of the situation in Iraq or sabre rattling in Ukraine are going to significantly alter the global risk appetite,” said one.

“Come September, unless those situations get a lot worse than they are now, the market will shrug it off.” Brazilian bond sales are likely to be muted in October and November, months in which the country’s market is expected to be volatile because of the presidential elections — something that could be prolonged if the vote goes to a run-off on October 26.

A slowdown in Brazil will hold back overall market activity in LatAm, sources said. Many issuers have taken advantage of good market conditions in recent months to frontload their financing for 2014, trimming market expectations of supply in the final weeks of the year.

However, the 10-year US Treasury rate has fallen steadily this year, reaching at 2.34% on Friday — a 2014 tight. If US rates remain low and demand for high yield continues to be strong, companies may be tempted to raise more capital in the bond market to replace more expensive debt, as Brazilian food company Minerva did last week, bankers say.