The US 10-year Treasury bond hit near seven-year highs this week, prompting Latin American names to sit on the sidelines or turn to alternative currencies.
Ten-year Treasuries swelled above 3.1% at one point on Thursday, but opened up on Friday at 3.097%. This week Pemex raised debt in euros, while Chile’s state-run BancoEstado printed bonds in Hong Kong and Japan.
And while Unigel managed to raise $200m through a revised bond sale, Chilean pulp and paper company CMPC opted not to issue intermediate debt, despite wrapping up what sources described as positive investor meetings on Tuesday.
A wider ten-year placed unnecessary pressure on a likely new issuance from CMPC and strained Chile and CMPC’s own debt curve.
“The US 10-year moved a lot and put pressure on the deal that was not previously there,” one DCM banker said of market conditions.
CMPC’s outstanding 2027 bond was spotted at a G-spread of roughly 175bp this week and about 100bp over where Chile’s 10-year bond was trading in secondary markets, according to a second DCM source.
“If a deal cleared at around 200bp [Over US Treasuries], then I think both buy and sell sides would be happy,” opined the second banker not involved in the transaction. “Consider that CMPC would be extending its debt curve, add in a new issue concession and current Treasuries figures, there is no need to print right away.”
The first banker added: “There is no rush to print [a new bond issuance] and make the market think you need to money… They have time.”
Equity indexes such as the Dow, as well as Mexico and Brazil’s stock exchanges, traded soft throughout the week on account of tensions in the Middle East and election jitters in LatAm jurisdictions.
Brazil’s B3 Bovespa took a beating to close down 3.37% on Thursday at 83,623 points, while Mexico’s stock exchange slumped 1.36% at 45,788 points on Thursday.
“What happens on the periphery is what is impacting issuers’ decisions right now,” added the second banker. “And a company like CMPC is not going to want to take a 20bp or 25bp new issue concession.”
Baa3/BBB-/BBB rated CMPC picked JPMorgan, Santander and Scotiabank to conduct investor meetings in Santiago, London, Boston and New York from last Friday through Tuesday.
In March last year, CMPC raised $500m in 2027 paper with a 4.375% coupon to yield 4.42%, or a reoffer price of 99.639.
“This deal traded through the roof last year,” a third DCM banker said of the 2027s secondary performance. “So it is hard to justify going out this week.”
US Treasury yields hitting that near seven-year high follows a market sell-off spurred by a stronger dollar and signs of a growing US economy.
These higher levels, around or above 3%, are expected to prevail until there are significant shifts in economic data or signs that the US Federal Reserve would move away from its stance of gradual interest rate increases, sources said.
Elsewhere, Peru’s Camposol and Paraguayan Banco Regional both terminated tender offers for existing bonds, and sources are convinced that LatAm names wanting to issue new bonds in this environment will have little choice but to cough up extra in new issue concessions.