Peru hit the cross-border debt market on Tuesday to sell the first bond from the region in two weeks and the first sovereign note in almost a month.
The A3/BBB+/BBB+ rated sovereign printed a 4.125% $1.25bn 2027 note, in a deal that surprised many observers with its timing. August is usually a quiet market in the dollar bond market, and some observers had expected borrowers to wait until the US Federal Reserve’s September meeting before tapping investors.
“It was brave to jump in the water,” said one debt capital markets, source, but added that it was “probably good timing in hindsight”.
After announcing initial price thoughts, the sovereign and bookrunners Citi and JPMorgan pulled in pricing by 30bp by the time of launch.
The sharp tightening was described as a “shock” by another observer of the deal
The transaction was heard to attract around $5bn in demand, helping lead managers to drive the pricing tighter.
The new bond offered investors a premium of about 20bp over fair value, observers said, pointing to where Peru’s 2025 bond was trading. That was seen as a fair new issue concession given volatility in the markets.
Peru likely decided to issue in the market in August, a normally slow month in primary bond issuances to escape possible rate volatility in September in anticipation of the US Fed’s meeting and a possible rate hike.
“I can see why they probably want this trade now as opposed at the end of summer, when it could be busy and there could be more pressure on spreads and more rate volatility,” said a DCM source at the time of sale.
On Wednesday, the spread on the new issue was heard to tighten between 5bp and 7bp before widening back out to 195bp by Thursday’s close. LF