LatAm Bonds
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The new issues market for sovereign, supranational and agency borrowers could be wrecked in 2012 unless dealers can find a way to mitigate changes to bank regulations that are crushing the business model.
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Sovereign, supranational and agency issuance planning for 2012 lay in tatters after last week’s Eurogroup summit left issuers and their advisors riddled with uncertainty. Although funding volumes are known, plans of campaign are limited to taking a wait-and-see approach as issuers face up to increased scrutiny, wider spreads and smaller deal sizes.
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The largest ever sterling transaction from an emerging market issuer, a bumper sovereign inflation-linker from Uruguay and a heavily oversubscribed issue from Pacific Rubiales made for a strong start to the week in Latin America. But deal flow dried up later in the week as investors stayed on the sidelines ahead of the eurozone summit.
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Borrowers and their dealers are increasingly nervous about issuance in the first quarter of 2012 as faith in the ability of the European policymakers to reach an accord before the traditionally busy opening in January diminished ahead of the summit on Thursday.
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This week’s Eurozone crisis summit is unlikely to satisfy investors and end the volatility that has paralysed markets in recent weeks, bond players said on Thursday afternoon. Key steps including committing to an aggressive European Central Bank buying programme, clarifying fiscal union and transforming the European Financial Stability Facility into a bank seem remote amid continuing political wrangling.
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Ten Moody’s-rated speculative grade issuers defaulted in November, leaving the trailing 12 month global default rate for junk credit at 1.8%.