Paraguay Tightens Its Way into LatAm Bond Club

The Republic of Paraguay has made its anticipated international bond debut, raising $500m at a tighter than expected 4.625% level and getting about $5bn demand. The 2023 bond priced inside of Bolivia, who itself debuted last year bringing similar political and macroeconomic risk. Paraguay becomes the latest high-yield borrower to capitalize on low US rates and heavy demand for exotic credits. “Timing could not have been better for Paraguay,” notes a participating EM sovereign bond investor following the trade. The Ba3/BB minus/BB minus trade priced at par with a 4.625% coupon to yield 4.625%, at the tight end of 4.625%-4.75% guidance given Thursday morning and revised from Wednesday’s 5%-area. Orders were heard peaking at $5.6bn before the final tightening. The bonds were trading up 1.25 points in the grey, according to a trader. “Issuers normally leave a bit of spread on the table, but Paraguay is squeezing from the market, but that doesn’t mean that the bond will not be successful,” says a participating London-based EM portfolio manager, noting the difficulty in finding Paraguayan paper. The issuer’s main comp was Bolivia’s (Ba3/BB minus) 2022, which also started at 5% indications before tightening to price at 4.875% in October, and was recently trading in the 4.75%-4.80% range. “The deal is not particularly cheap. On a relative basis, Paraguay should trade inside Bolivia but the problem is that Bolivia is trading very rich,” says a New York-based sovereign credit investor. “A credit like Paraguay is able to price at those levels because of the strong rally in middle yield credits like El Salvador, Guatemala, Costa Rica and Dominican Republic. They are pricing in a major rally and benefitting from that,” says a participating London-based EM investor. Some 211 accounts participated. Paraguay has enjoyed fiscal surpluses in 2005-2011, though it posted a small deficit in 2012. For 2012, it reported a government debt of 14% of GDP and external debt to GDP of 8.8%. “Wh