Wednesday, 7 January 2009

IDEAGlobal Comments on Latin American Bond Sale Binge (Update)

Here is the comment by IDEAGlobal analysts on the recent sovereign bond sales by Mexico, Colombia and Brazil. According to Reuters and Bloomberg, next to come are Peru and Chile.


''The scoreboard of the last three weeks reads quite positive for
core LATAM credits. Brazil (US$1B), Colombia (US$1B) and Mexico (US$2B)
have all been quite successful in tapping the international markets for USD,
walking away with important 2009 funding at very modest relative yield
levels.´´


This might well be true. Brazil yesterday sold $1 billion of 2019 notes to yield 6.13 percent, or about 3.7 percentage points more than U.S. Treasury yields of equivalent maturity. Colombia sold bonds of similar characteristics (10-year, fixed-rate notes) at a yield of 7.5 percent (a bit more than 5 percentage points above U.S. Treasury yields.) IDEAGlobal said yields were beneficial (''spread concessions moderate when contrasted to the assumed caution still on hand with the overall global recessionary environment on hand.´´) One thing that we haven't mentioned is the fact that specialised investors are discriminating the good credits (Brazil, Peru, Colombia, El Salvador, etc.) from the bad/noisy credits (Ecuador -- in default, -- Argentina -- still in arrears, -- Venezuela -- with cash but raising doubts over its willingness and its political moment, etc.)

Brazil also completed its sale of 10-year notes in Asia, where it sold another $25 million of the securities, according to the National Treasury (check the release here.)

Fitch also made the following comment about the Brazilian bond sale:
''Brazil's investment grade rating is supported by the
significantimprovement in Brazil's external and public sector solvency ratios
whichhas diminished the vulnerability of the country to external and
exchangedrate shocks. Brazil's sizable stock of international reserves and its
netpublic sector creditor status has enhanced its ability to maneuver in
thecurrent unfavorable external environment. A track record of commitment oflow
inflation and a primary budget surplus have enhanced overall policymanagement
and contributed to entrenching macroeconomic stability in thecountry. On the
other hand, Brazil's ratings are constrained by thestructural weaknesses in
public finances, a heavy government debt burden,an unfavorable, albeit improving
structure of domestic debt and a glacialpace of structural reforms.´´

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