Liquidity Concerns Loom for LatAm Corp. Debt

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.