Desperate for local currency and other business, bankers are inundating Brazil with requests to take the sovereign on a tour of Europe and Asia next week, after it finishes a two day non-deal roadshow with JP Morgan.
Brazil's new financing team at the national treasury will spend this coming Monday and Tuesday meeting investors in New York, during which it will discuss its local market and the likelihood of a real denominated global bond issued in the new year.
“I am sure the real deal will come up,” said one JP Morgan banker, denying however, that Joaquim Levy, the Brazilian secretary of finance, and Jose Antonio Gragnani, deputy secretary of the treasury, had already given them a mandate for the real deal.
Last Friday JP Morgan re-opened the sovereign's 2014s for $500m, a deal that attracted $1.7bn in orders in half an hour.
The objective of the deal was to improve the liquidity of Brazilian paper at the 10 year part of the curve, where its 2014s had previously been trading as much as a quarter to half a point bid/offer spread.
After the re-opening, the now $1.25bn 10 year was trading with a bid/offer spread of 10c, similar to the bid/offer spread of its highly liquid 2040s.
Meanwhile, virtually every other Latin American bond house is vying for the soveriegn's attention, pitching not only reais deals but also the possibility of Brazil following Pemex's footsteps and issuing perpetuals targeted at Asian and European investors.
Staring at the pitches
“People are trying to get them to do everything all the time,” said one banker. “We are pitching investor meetings in different regions so I am sure there are several banks pitching the same idea. It certainly makes sense for them to be on the road right now because the responsibility of funding for the Brazilian government is being shifted from the central bank to the national treasury”.
It is understood the real global will done in the new year. In the meantime Petrobras is being urged by bankers to fill the void with a R500m three to five year Real denominated global bond.
“They are not really looking for funding right now, but they have big capital expenditures for next year so they are always considering the market,” said one banker.
The Inter-American Develop-ment Bank was the last to offer a reais denominated eurobond, having priced a R200m five year deal at the beginning of the week at 6.26% over the IGPM, Brazil's equivalent of the CPI.
The deal, led by ABN Amro, was doubled in size and attracted interest from the US and Europe, as well as some big tickets from local players.
The strength of demand enabled the IADB to price at the tight end of its yield guidance of 6.25% to 6.35%. The deal will be swapped back to dollars at a comparable five year funding cost in dollars for the bank.
Banco do Brasil is also jumping on the bandwagon, but with a different structure entirely: a three year zero coupon R200m equivalent deal in the 17.5% area and led by BB Securities.
The best benchmark to date is Banco Bradesco's R220m three year priced last week to yield 17.5%.
International investors are attracted to the Brazilian market because of the juicy yields on offer and the expectation that its flat local currency yield curve will invert at the long end.
With emerging market global bonds unlikely to offer much in the way of returns in the year ahead, local currency markets are being heavily targeted by dedicated investors in the asset class as a way of adding extra juice to their returns.
“I think everyone is looking at the local markets,” said one head of emerging market bond syndicate in New York. “Investors are looking at the local markets to make money because realistically you have to expect that spreads will not grind tighter globally, especially in a rising rate environment.”