The Federative Republic of Brazil took advantage of an end-of-year rally in emerging market bond spreads this week to reopen its 2034s for $500m.
The deal, led by Barclays Capital and Merrill Lynch, attracted more than $2bn of orders from about 150 accounts. It was priced at a spread of 362.5bp at a time when its outstandings were trading at 360bp.
The bonds were marketed on a spread basis to weather extreme volatility in the Treasury bond market this week prompted by signs of a much stronger than expected US economy and expectations of higher rates in the near term.
Like the $500m reopening of its 2015s in early November, Brazil decided to announce the trade first in Asia to make the most of its non-deal roadshows in the region earlier in the year.
Its decision paid off, with about 10% of the new bonds placed in Asia with 14 different accounts from Singapore, Hong Kong, Korea and Taiwan.
Given the length of the maturity, however, the bulk of the deal was placed with US investors still desperately searching for paper despite the record tight spreads in emerging markets.
Brazil has now raised $3.5bn or 39% of its $9bn of international financing needs for 2006 and 2007. Although the markets are buoyant, Brazil followed a common trend among Latin sovereigns this year of keeping sizes small, telling investors that it would not expand the deal beyond $500m, regardless of the book size.
"This emphasis on properly sizing transactions has proven to be a very good execution strategy over the course of the year for Latin American sovereigns," said one banker.
The deal traded down slightly on Wednesday in line with the rest of the Brazilian curve after the government announced that Brazil's GDP had declined 1.2% in the July to September period, but it regained ground yesterday (Thursday).
The strength of the emerging markets has surprised even the most bullish on the asset class. JP Morgan's Emerging Markets Bond Index Plus ended November at 248bp over Treasuries, just 10bp off its all-time high of 238bp on November 25.
The October market correction was very short-lived, as sovereigns like Mexico continued to put into place moves to reduce their dependence on external financing in favour of their home markets.
The emerging markets also continued to weather all storms. On Monday, Nestor Kirchner, the Argentine president, ousted economy minister Roberto Lavagna because of disagreements over economic policy.
Argentine external dollar bond prices plunged about two points on the news, but Brazil's deal was unharmed.
New corporate deals also went on the road, including a $250m 10 year bond for Brazil's Grupo Ultra, led by Morgan Stanley and Banco Santander Central Hispano, and a $160m 10 year non-call five issue for AES Dominica, led by ABN Amro.
Transtel, the small telecoms company based in Colombia, is also still pursuing issuance of about $180m of bonds in the high yield market, led by UBS. However, there was speculation that the Transtel deal might be rejigged to offer equity warrants and amortise to attract investors into the deal.
"Even though it is late in the year, deals that are coming are getting attention," said a head of Latin debt capital markets in New York. "The deals are falling into two categories: either they are benchmark issuers or they are debut corporate credits with high yields attached.
"These are the kinds of deals people want."
Lavagna's dismissal
Analysts are now recommending bankers underweight Argentine bonds, because Lavagna was seen as the sole advocate of fighting inflation by tightening monetary policy.
And the possibility of a return to the dollar markets for Argentina appears to have been effectively ruled out now that Lavagna is no longer running the economy.
Kirchner has replaced Lavagna with Felicia Miceli, former president of Banco de la Nación, who is expected to toe Kirchner's line and agree with price-distorting methods of containing inflation, rather than by raising rates.
"Not surprisingly, inflation is likely to continue to rise and likely more sharply than on its previous course in anticipation of even tighter price controls," said José Barrionuevo, chief Latin American economist at Barclays Capital.
The news of Lavagna's replacement, despite not impacting Brazil's reopening, was a blow to investors who have poured money into Argentina's local bonds in the hope that it was at last on the road to sustainable economic growth and contained inflation.
"Lavagna's departure and Miceli's appointment mark a clear deterioration in Argentina's policy stand, with President Kirchner reasserting himself in his perceived role as defacto finance minister," said Barrionuevo.
It was Lavagna who also understood the importance of an IMF agreement, and was interested in reopening Argentina's debt exchange to deal with the remaining $20bn-odd holdout creditors so that it could return to the international markets.
Lavagna's greatest contribution to economic management was his pursuit of a strong fiscal stance on the part of the government. This, too, could suffer now that he has gone.
Banco de Crédito del Peru (BCP) debuted in the international markets this week with a $280m two part MT-100 securitisation that set a new record for pricing.
The deal, led by Standard Chartered, was split into an AMBAC triple-A wrapped $230m 2012 tranche with a 5.5 year average life and a $50m BBB/Baa2 rated 2009 piece with a 3.5 year average life.
The triple-A wrapped piece was priced at just 21bp over Libor, compared with EMEA MT-100 deals from Turkey and Russia marketed at levels of between 24bp and 30bp over Libor.
BCP has launched three previous securitisations, but this week's deal is the first to have been marketed and sold to private placement investors in the US.