Brazil Goes Long with 2041 Bond

Brazil has wasted no time since gaining the third of 3 investment-grade ratings, selling $1.25bn in new 2041 bonds to extend its yield curve with the longest duration from LatAm so far this year. The Baa3/BBB minus bond priced at 97.498 with a 5.625% coupon, to yield 5.800%, or UST plus 175bp. According to a banker close to the transaction, the new issue priced 8bp over the 2037 and the curve is seen very flat at the long end. The sovereign announced Wednesday morning whispering “high fives” and a size of $1.00bn, and demand reached about $3.50bn-$4.00bn at the time 5.85% area guidance was issued. The book ended up at $5.75bn – apparently including some new high grade names – and the deal was heard 0.5-1.0 point higher in the gray. “It’s attractive compared to the rest of the curve,” says a New York-based EM investor participating, noting he expected it to price through the 2034s and 2037s. “There’s still a dearth of supply of cash bonds,” the investor adds, noting many asset managers around the world may still be under-allocated in EM, adding that a duration bond from a high-quality liquid issuer is especially attractive. “It’s a new 30-year benchmark, so people need to be exposed,” says a banker on the trade. HSBC and Barclays managed the sale, which is understood to be for pre-funding. “It opens up the possibility for top tier names to go at the long end,” says a banker on the deal. “There’s clearly a bid.” Brazil paved the way for yesterday’s trade with a well received $500m July 30 tap of its 7.125% of 2037 bond, the longest dated cross-border LatAm issue since May 2008.