Conditions in the dollar market look better for Latin American issuers as US treasury rates settled back to the 2.3% area on Wednesday, after the US Federal Reserve kept its target rate at 0% to 0.25%, citing improved but still-too-weak labor data to warrant a rate hike.

   
  
 Janet Yellen speaks June 17 
(US Federal Reserve)		 

BB-/BB+ rated power company AES Panama, which finished a roadshow yesterday, could be the first LatAm issuer to take advantage, following two weeks of volatile Bund and US Treasury yields.

US Treasuries closed at 2.32% on Wednesday, extending the rate’s lowest level in two weeks and a sharp tightening from the 2.5% level hit on June 10.

“The Committee continues to judge that the first increase in the federal funds rate will be appropriate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term,” said Fed chair Janet Yellen.

Yields on 10-year US Treasury bonds were seen to have widened by 25bp to 50bp over the last few months, signaling that the market is pricing a rate hike in.

“If the Fed doesn’t raise rates in September, then everyone is going to jump in,” said a DCM source. “But is the market really recovered as people think or is the recovery we see in the labor market is a little exaggerated? … I don’t think anything feels there is a recovery in production or in sales. I think it would be a mistake to raise interest rates too quickly.”

The US economy contracted 0.7% in the first quarter, prompting the Fed to cut gross domestic product (GDP) growth forecast to 1.9% this year, down from a 2.4% forecast in March.

Meanwhile, uncertainty surrounding a possible Greek default has lifted rates in Europe and deterred issuers from that market.

“The market is a bit destroyed,” said a London-based DCM source.

Yields on the 10-year Bund rose to 0.81% on Wednesday from 0.53% at the beginning of the month.

Greek politicians and Eurozone finance ministers, who are meeting today in Luxemburg, have so far failed to reach an agreement that would release a €7.2bn bailout for country. Greece has a €1.6bn payment due to the IMF on June 30. 

From LatAm, Jamaica and Mexico’s Grupo Posadas are also on the road in the US and Europe, and Aruba is on a non-deal roadshow in Switzerland.  LF