High yield name Ultrapetrol was the only borrower in the market, as the region marked two weeks without a dollar deal from an investment grade issuer.
Bankers on a roadshow with Aa3/A/A+ rated Santander Chile last week had penciled in a new deal for this week, but there has so far been no sign of the Chilean bank.
Last week’s only issuers from the region were Mexico’s Grupo Famsa — a high yield credit less affected by movements in Treasury rates — and RCO, which issued a Mexican peso-denominated bond.
"It’s been a funny week, and the deal will come at the right moment," said one banker close to the Santander Chile deal on Thursday.
Yields on 10 year US Treasuries widened 14bp to 2.15% on Tuesday’s close, before tightening slightly on Wednesday to close at 2.13%. On Thursday afternoon the bonds were seen around the same level.
As recently as May 1, USTs had hit their tightest levels of the year, at 1.66%, but US Federal Reserve chairman Ben Bernanke’s remarks last week about the possibility of a tapering of the Fed’s bond-buying programme during 2013 have spooked credit markets.
Bankers away from the deal said Santander Chile’s outstanding bonds had widened in recent days. On Thursday afternoon Barclays said that high grade bonds had been the most affected, with Petrobras 16bp wider since that time last week.
And Santander Chile’s peer Banco del Estado de Chile was one of the worst two performers this week among senior debt from emerging market banks, seeing its notes widen 23bp in seven days.
"For me, the reason we have hardly seen any new issue activity in LatAm is the sell-off in US Treasuries," said one LatAm origination banker in New York.
For now, the biggest names in the pipeline are looking away from dollars, with Banco do Brasil set to begin a European roadshow on Friday ahead of a potential euro-denominated deal.
EUROS LOVED AGAIN
Petrobras has also said its next issue is likely to be in euros, having completed a record-breaking $11 billion dollar bondearlier in May.
And although many market participants have been expecting a dollar deal from Santander Chile, one LatAm DCM banker not working on the deal — but who is focused on financial institution borrowers — believes the final currency could surprise observers.
"Everybody is assuming they will do dollars but I think the market could be surprised by the currency," he said. "Dollars would be expensive for them right now.
"Plus, Santander Chile usually does non-deal roadshows. When they said they were doing a deal roadshow this time their dollar bonds moved out 10bp-20bp in the secondary market. Why would they want to give that away on a new issue when they could have just announced a deal straight away?"
BNP Paribas, Deutsche Bank, Goldman Sachs and Santander took Santander Chile on a roadshow in the US, Europe and Latin America last week promising a 144A/Reg S deal.
New issue activity was not helped this week by Monday being a public holiday in the US, for Memorial Day, and Thursday being a holiday in parts of Brazil.
"Monday was a holiday, Tuesday was very volatile, issuers will want some stability today and Thursday before issuing, and you can’t really launch a bond on Friday," said one head of LatAm DCM. "That pretty much rules out this week for a lot of issuers, though next week should be busier."
However the banker believed the Treasury volatility of the past week was just the start of troublesome conditions.
"It is not the end of the world and an interest rate rise at some point has been expected for three years," he said. "But these Treasury movements are not good for the stability of our market. It is inevitable that we are going to see a gradual rise in rates but there will be volatility, with each new economic indicator pushing Treasuries significantly tighter or wider."
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