Brazilian sovereign bonds rallied this week, prompting
it to issue $1.5bn in 5.625% 30-year notes. Bankers said the sovereign’s return could entice
some Brazilian corporate issuers to tap the cross-border market ahead of the summer slowdown in the US and Europe.
The market friendly tone of acting President Michel Temer was
helped by the appointment of former central bank governor Henrique Meirelles as
finance minister, one fixed income investor told LatinFinance.
“The Brazil story on the
margin is improving. We see that reflected through lower bond yields in the
local market in particular. You’ve seen some spread compression against its
other regional peers. They are trading a bit wider than some of the other stories
like Paraguay,” he said.
Brazil’s
5.625% 2046 notes were offering an asking price just below 97 on Friday morning.
Yields had tightened to 5.8% on the newly-issued notes, or 356.5bp over US
Treasuries. The sovereign’s 2045 notes were seen at yields of 5.69% on
Thursday, offering a G-spread of 320bp, a debt capital markets banker said.
Brazil’s central bank recently held
its benchmark lending rate at 14.25%, amid a more guarded tone from several
emerging market central bank governors, according to the Institute of
International Finance (IIF). Expectations of more monetary easing pushed emerging
market equities higher and credit spreads lower in a post-Brexit environment,
the IIF said.
In July, sugar
and ethanol producer Cosan sold $150m in 7.125% 2027 bonds, paper producer Suzano
sold a $500m green bond and state-owned energy company Petrobras
whetted investor appetite with $1.25bn in 8.75% 2026 bonds and $1.75bn in
8.375% 2021 notes.
Petrobras’ 2021s were trading to yield 7.9% on Friday afternoon, or a spread of 106bp over US Treasuries. The longer-dated 2026s widened to 8.4%, or 104.2bp.
The DCM banker said recent issues this month from Argentine
corporates, such as Clisa and Banco Galicia, were part of a trend that could tempt
Brazilian corporates to offer yield to investors. Infrastructure firm Clisa
sold $200m in 9.75% notes, while Galicia
offered yields of 8.25% on its 2026 $250m tier two bond.
“The issue sizes won’t
be that big, but while investors are searching for yield, it makes sense to
evaluate opportunities in Brazil,” he said.