Colombia’s central bank raised its rate by 25bp to 4.50% Friday, in-line with expectations. “Employment, trade and consumer confidence figures released since the last meeting also shows evidence of robust domestic demand and support expectations for economic growth to remain high and the central bank to continue tightening,” RBS says. Goldman Sachs echoes such thoughts, noting that the country’s economic activity remains strong with demand growing above trend, while credit growth is also accelerating at a time when nominal and real rates are quite low.
Category: Economy & Policy
Posted inDaily Brief
Brazil’s Derivative IOF Could Encourage Global BRL
Neither bankers nor investors see the Brazilian government’s new IOF tax on derivatives diminishing the attractiveness of overseas issuance by the country’s companies. Indeed, the move may be another reason for accounts to migrate to the global BRL market as they look to avoid the increasingly onerous tax burdens being imposed onshore. “If the gap we’re seeing between offshore and onshore levels remains, it could make global BRL issuance more attractive [to investors],” says a New York based DCM banker. The new tax will likely make it cheaper for international buyers to hedge currency risk offshore, he adds. “This should drive more investors into global BRL,” adds another banker, noting a secondary rally in outstanding global-BRL bonds. “It will not change investing behavior fundamentally, but it will make things a bit more expensive for us,” says a North American EM debt portfolio manager. He explains that even if he hedges offshore, he expects it may still involve a counterparty using onshore hedging, and the cost is likely to be passed on. So far the impact of the new tax, which is part of the government’s effort to contain the strength of the BRL, has had a greater impact in the FX markets, where liquidity has already fallen and is expected to shrink further with Goldman Sachs downgrading the stock of BM&FBovespa on the expectations there will be fewer transactions. This could deter fast money, but the larger question for buy-and-hold types is the overall direction of government policy. “If investors see more and more controls coming, you will see a lot of interest move away from Brazil,” an EM bond investor says.
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NR Finance Prices Floater
Mexico’s NR Finance priced MXP2.5bn ($215m) in 3-year floating rate bonds in the domestic market, coming at TIIE+50bp, or 5bp tight to guidance after generating MXN3bn plus in demand. Pension and mutual funds were the principal buyers. The Nissan leasing subsidiary was expected to price last month but halted plans to issue after regulators required more time to enquire about guarantees from the parent. With regulations becoming more stringent across Latin America, greater transparency is being sought from issuers in an effort to protect and encourage pension fund participation in bond issues, bankers say. NR Finance plans to use the funds for working capital. HSBC and Scotia managed the sale, rated AAA from Fitch on a local scale. The borrower last came to market in November 2010, when it issued MXP2.8bn in 3-year bonds, priced at 65bp over TIIE.
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Unifin to Issue MXP Issue
Mexico’s Unifin Financiera is preparing to issue up to MXP400m ($34m) in the domestic bond market. The 5-year floating rate bonds will pay a spread over TIIE. Pricing is expected at the end of August. Standard & Poor’s and HR Ratings assigned local triple A ratings for Unifin. IXE is leading the transaction.
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Panama Makes OECD White List
Panama has been placed on the Organization for Economic Cooperation and Development’s (OECD) list of financially transparent countries. The OECD’s White List consists of countries which have substantially implemented international standards for the exchange of information. Previously, the OECD had included Panama on its list of countries considered to be tax havens. The promotion came a day after S&P revised its outlook on Panama’s BBB minus rating from positive to stable and in the wake of the signing of a double taxation treaty with France.
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GEO Upsizes Domestic Issue
Corporacion Geo has issued MXP400m ($34m) in 3-year floating rate bonds at TIIE+320bp, upsizing from an initial target size of MXP200m. Proceeds are for general corporate purposes. Fitch upgraded the homebuilder’s rating to BB minus from B plus with stable outlook earlier this month. BBVA Bancomer managed the deal.
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Inbursa Prices MXP Floater
Mexico’s Banco Inbursa has issued MXP4.9bn ($422.64m) in 3-year floating rate bonds, after receiving 1.1x demand, says a banker on the deal. The bonds priced at TIIE+20bp, flat to guidance and at the same levels achieved by Santander Mexico earlier this month when it reopened its MXP5bn 3-year bond for MXP730m. A non-participating investor says that while Banco Inbursa is a good credit with a AAA rating on a national scale, spreads were not attractive enough to warrant participation. Bankers on the deal say the book size was smaller because Inbursa had capped pricing at TIIE+23bp. Santander, BAML and Actinver were the leads. Banco Inbursa last came to the market in April, when it priced MXP4.5bn 3-year at TIIE+20bp.
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Peru Market Soars on Humala Appointments
Peru’s market soared almost 2% midday Thursday on news of several market-friendly appointments to the cabinet of President-elect Ollanta Humala, before closing slightly below its opening level. The appointments include Luis Castilla as minister of finance, Carlos Herrera as minister of mining, Salomon Lerner as chief of staff, and Kurt Burneo as minister of production. Several of the appointments had been anticipated, and cheered as proof that Humala was taking a centrist stance. According to Nomura, news will continue to support a rally in Peruvian assets, while the ratings agencies could upgrade the sovereign within the first three months of the new administration. Peru is rated BBB minus/Baa3.
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Brazil Hikes Rate
Brazil’s central bank hiked its rate 25bp to 12.50% yesterday, in-line with a broad consensus. With the vast majority expecting the hike, the focus was on the language of the central bank’s statement, which removed the clause saying that “the adjustment of monetary conditions for a sufficiently prolonged period of time.” The new statement says that the bank decided to raise the rate “at this time,” suggesting that the bank may pause rate hikes in August. The central bank has raised the rate by 175bp since December.
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Brazil Expected to Hike Rate Today
Brazil’s central bank is widely expected to hike its Selic rate today by 25bp to 12.50%. The central bank has raised the rate by 150bp since December. Goldman Sachs says the decision will hinge upon the inflation and global economic outlook, real GDP growth, and the labor market. “We believe that Copom should extend the tightening cycle until December, which implies three more hikes of 25bp in addition to the increase tomorrow,” Goldman says.