Concerns about shrinking liquidity in LatAm’s corporate debt markets are coming to the fore at a time when banks are holding less inventory and awaiting more clarity on how the so-called Volker Rule will impact market making. This was one of the conclusions reached among panelist discussing corporate debt at a LatinFinance Investor Forum in New York last week. Liquidity is important, especially for the relative value players who trade often in large sizes and use leverage,” says Andrey Popel, a director at Greylock Capital Management, a hedge fund that has $400m assets under management. “After leverage disappeared in 2008, the number of such accounts disappeared as well,” he added. “Poor secondary liquidity also hurts corporate bond investors during periods of volatility.” Against that backdrop, investor may start demanding higher liquidity premiums, resulting in higher funding costs for borrowers. Panelists also added that the lack of secondary liquidity and light transaction volumes has been hurting Wall Street trading desks as well. “There is a contraction of the number of seats in the trading arena,” says Steven Landis, managing director at FH International Asset Management.
Category: Economy & Policy
Mexico Holds Rates, but Easing Expected
Mexico’s central bank has elected again to hold interest rates at 4.5%, in line with the market’s expectations. In a statement, the bank cites continued deterioration in the global economy, slowing in the domestic economy, as well as a pickup in local inflation. Barclays notes that the bank’s remarks carry a heavier emphasis on slowing domestic activity and this may signal it will begin easing as soon as its next meeting, in March.
Brazil Cuts Selic by 50bp
In line with market expectations, Brazil’s central bank has cut the Selic rate by 50bp to 10.5%. “To mitigate the effects coming from a more restrictive global environment, a moderate adjustment in the basic rate is consistent with the scenario of inflation converging with the target in 2012,” the bank says in a statement. Several shops expect further cuts, including Itau, which forecasts 9% by May.
Enter the Elephant
India could represent a massive market for LatAm commodities. But can it act as a real driver for the region’s growth and lessen South America’s reliance on China?
Room for Mistakes
Peruvian political risk is back in the headlines. But so far investors are taking such events in their stride as President Humala pursues market friendly policies.
Brazil Expected to Cut Rates
Analysts are calling for a cut of 50bp when Brazil’s central bank meets today to set the benchmark interest rate, now at 11.0%. Itau, among those calling for such a reduction, says it expects the cuts to continue, and see the Selic rate dropping to 9.0% by May.
Chile Lowers Rates, Peru Holds
Chile’s central bank has decided to lower the country’s benchmark interest rate by 25bp to 5.00%, despite expectations it would hold. In its statement accompanying the decision, it cites continued slow growth in developed markets and slowing in key emerging markets. Meanwhile, Peru held its rate at 4.25%, as expected, with its central bank mentioning slow global growth and an increase in inflation as the main factors influencing its decision.
Colombia Holds Rates
As expected, Colombia’s central bank has elected to maintain the country’s benchmark interest rate at 4.75%. In its communique, the bank cites continuing international volatility, an acceleration in domestic credit growth and inflation that should finish the year at 4%. The bias is still for keeping the rate unchanged for longer or a possible hike in the future if necessary, Nomura says.
Colombia Set for Rates Decision
Colombia’s central bank is scheduled to decide today whether to alter the 4.75% benchmark interest rate. An eventual raise in the rate is expected, but many analysts predict a hike next year rather than what would be a second consecutive increase today, in its final meeting of the year.
Chile Holds Rates
As expected, Chile’s central bank decided to hold the county’s benchmark interest rate at 5.25%. The banks cited continuing deterioration in the global economic outlook, as well as domestic economic activity developing at a rate slightly below expectations. Analysts expect the bank to begin cutting rates as soon as January.