Brazilian banks are moving fast to snap up international demand for real-denominated Eurobonds in the absence of a much sought-after benchmark offering by the sovereign.
Banco Real priced a R150m three year Eurobond yesterday (Thursday) at par to yield 17.9%, at the tight end of its 17.9%-18.1% talk, led by ABN Amro.
Banco Bradesco is planning a $100m equivalent reais deal via Banco Pactual which will also have a three year maturity. Unibanco is preparing a $50m equivalent 18 month offering with talk of 17.8% to 18.2%. ABN Brazil is also working on a three year offering and the Inter-American Development Bank was in the market this week with a R100m five year talked at 6.25%-6.35%.
“Banks are doing this because it sounds sexy and the sovereign hasn't done it yet so they are stepping into the void,” said one banker.
The spotlight on Latin currency global bonds was the result of Colombia's highly successful debut $375m equivalent of five year peso-denominated global bonds in early November, led by Citigroup.
Dedicated investors are keen to buy high yielding local currency bonds to compensate for the record tight spreads on dollar and euro-denominated Latin bonds.
“Everyone is looking at our market and saying ‘where do you make money next year?'. Spreads can't go much tighter than they are in dollar paper so people are looking at the local markets to see if they can make some money,” said an emerging market syndicate manager in New York.
Investors are particularly interested in real-denominated globals because the costs of entering Brazil's local bond markets are too high.
Buying Brazilian real deals is something of a bet on the domestic reais yield curve inverting at the long end, because of the strength of the country's improving credit story.
“People are still talking about the Brazilians raising interest rates in the short term, but people think it is priced into the curve and what is currently a flat curve will become steeper and invert as you go out along the maturity spectrum,” said one banker.
Unibanco recently published a report suggesting a five year real global by the sovereign would outperform a dollar five year as long as the real did not lose more than 10% of its value during the life of the bond.
Brazil is said to be planning a $350m equivalent real global with a yield of 16% to 18.50%.