The timing of Brazil's first bond issue of the year was thrown into question this week when its paper, especially at the long end, nose-dived on renewed fears of rising US interest rates and signs that some big investors were already full on the name.
Rumours abounded on Tuesday morning that Brazil was considering reopening its 2034 bond. News of the possible tap caused the 2034s to widen, and their slide was exacerbated by fears of rising rates and what that would do to risk appetite.
The worries sprang from the US Federal Open Market Committee's release of minutes on Tuesday, showing a more vigilant stance towards inflation than had been expected.
By yesterday (Thursday), Brazil's 2034s had lost almost six points to 92.00, from 97.85 on Monday.
“The way the market has been beaten up by the minutes, we may have to wait a bit before people take a punt on Brazil again,” said one head of Latin American debt capital markets.
There is enough cash around for Brazil to come to market, but initial feedback from accounts this week was that they would need to be handsomely rewarded to consider a new deal.
“The impact of the FOMC minutes on the market has really made us wonder if high beta names can tap the market,” said one banker in Latin American debt origination.
More volatile credits are usually the worst performers when rates are rising, and Brazil has the added problems that its spreads are at all-time tights; investors are already overweight the name; and they can pick up plenty of Brazilian bonds in the secondary market.
Now bankers are proposing that Brazil do a new 10 year benchmark in dollars, something they hope will emerge next week if markets react well to US unemployment figures today (Friday).
For the near term at least, the idea of a reais denominated Eurobond has been pushed to the background.
“That is the riskiest product to put out there and the market's just not right for that at the moment,” said one banker. “Also, a reais deal could only raise peanuts. Brazil needs to raise $4.5bn this year and therefore needs to consider deals that can be done in size.”
Investors still have demand, it seems, for high yield corporate bonds from Latin America, despite the weakness in emerging market bonds since the Federal Reserve revealed its growing hawkishness on Tuesday.
This week Axtel, the Mexican telecommunications company, had no trouble adding $75m to its 11% 2013 bond at a price of 106.75, or about a half point discount to secondaries. The deal size is now a respectable $250m. The deal was led by Credit Suisse First Boston.
“There's still a lot of money looking for a home and absolute yields are still attractive to issuers,” said one banker. “Sure, the market needs to be a little more robust than it has been this week, but if you need to raise money, do it now while there's the cash out there and before interest rates go higher.”
CSFB is understood to have won another mandate to bring Sabesp, the Brazilian water utility, to the dollar market.
Venezuela has also requested proposals for a deal, and the Dominican Republic has mandated Morgan Stanley and UBS to manage the restructuring of its $500m 2006 note and $600m 2013 bond.
The Dominican Republic deal is due for launch in February, after the IMF has voted on its $1bn two year programme for the country on January 21.
A bondholders' committee has called for a meeting with the government, which the latter has declined, preferring to meet creditors one by one. The government is expected to seek a maturity extension of its 2006s and possibly capitalisation of coupon payments.
Argentina will go on the road next to try and entice bondholders to accept its so far widely rejected debt restructuring proposal.
The roadshow will be conducted by two teams, beginning in Miami and touring Europe from January 17 to 21. One team will then move to the US while the other continues in Europe. The roadshow ends in New York and London on Thursday 27.
At this point there are no signs of any improvement in Argentina's conditions. It is offering investors little more than a 25% recovery on the $100bn of defaulted debt and past due interest it owes.
The Argentines hope to finish the transaction by March.