Global Credit Market Tumult Freezes Latin American Bond Sales

 

►Local currency deals at their lowest since 2009 amid virus

►‘Next to no appetite’ for high-yield issuers, analyst says

(Bloomberg) -- Latin American bond sales, which broke records last year, have ground to a halt amid the coronavirus chaos that brought the global credit market to its knees.

Governments and companies in the region have sold about $9.7 billion of debt denominated in local currencies so far this year, the least since 2009, according to data compiled by Bloomberg. The slowdown is particularly pronounced in Brazil, where sales are off by more than 50%.

Latin America mirrors the situation across the globe, with issuance drying up this month as the virus became a global pandemic and an oil-production war caused crude prices to collapse. Investors recoiled from credit markets, pulling out of high-yield and investment-grade funds. With local and overseas markets all but frozen, borrowers, especially higher-risk ones, are left with few options, analysts said.

“Most issuance plans are shelved amid the current volatility, with issuers forced to wait for markets to recover,” said Sebastian Hofmeister, director of Latin America credit at Lucror Analytics. “We see next to no investor appetite for USD issuance from LatAm high yield issuers currently.”

Uncertain Demand

It’s a marked turnaround from a year ago when Brazil was on its way to setting a local debt sale record and Colombia’s market saw the most peso-denominated borrowings in at least a decade. Markets began drying up late last year as widespread civil unrest and slowing economic growth stalled demand. The spread of the coronavirus, which has reached all major countries in the region, came just as the markets were staring to rebound, prompting both companies and government to put sales on hold.

”We have seen several EM treasuries across the world cancel auctions,” said Guido Chamorro, co-head of emerging hard-currency debt at Pictet Asset Management Ltd in London.

Still, the freeze in international markets may give governments little choice but to turn to their home countries and attempt to take advantage of what little demand there is, Chamorro said.

“Countries with deficits will still need to finance them and Eurobond markets are essentially shut down as international capital markets have been hit even more than local markets,” he said.

By Ezra Fieser and Pablo Gonzalez