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Riots and Slow Growth Can’t Stop Latin America’s Bond Boom

Sydney Maki
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Riots and Slow Growth Can’t Stop Latin America’s Bond Boom

(Bloomberg) -- Investors are snapping up a wave of bond sales in a region that was racked by social unrest and mired in anemic economic growth.

Petroleos Mexicanos, the Dominican Republic and Chile led borrowers in selling more than $36.6 billion from Jan. 1 to 27, poised for the largest amount in any month since January 2018, according to data compiled by Bloomberg. It’s a 290% increase from the first weeks of 2019.

A stable risk environment and U.S.-China phase-one deal signed this month opened the flood gates after a year dominated by concern over the impact of the trade dispute on global growth, according to Jim Barrineau, a New-York money manager at Schroders Plc.

“Lots of new deals have gone oversubscribed,” said Patrick Esteruelas, head of research at EMSO Asset Management in New York. “Nearly everyone is accepting risk.”

The new-found appetite for risk was shown by Pemex. The state-owned oil company, weighed down by about $100 billion in outstanding debt, received $25 billion in bids for the $5 billion in 11- and 40-year bonds it issued on Tuesday.

Investors also snapped up about $3.8 billion of bond sales in Chile, a country that has been racked by the worst civil unrest in a generation and that will post the largest budget deficit in at least a decade this year.

Mexico’s government sold $3.7 billion in euro- and dollar-denominated bonds, front-loading its borrowing schedule. Low rates and the resilience of the peso make it attractive to investors, said Polina Kurdyavko, head of EM and senior portfolio manager at BlueBay Asset Management in London.

Companies in Brazil also tapped the market, with at least five deals already priced versus none in the same period of last year.

Busy Pipeline

Some say the borrowing spree won’t last. Latin America’s largest bond underwriter, Itau Unibanco Holding SA, said foreign bond sales will dwindle this year amid sluggish growth, social unrest and the U.S. presidential election.

Still, the region’s pipeline remains busy with roadshows planned for Aerovías de México and expected issuance from Centrais Eletricas Brasileiras.

“We expect high levels of high-yield issuance to continue in the region during the first quarter of 2020, with the exception of Argentina and Ecuador, where political uncertainty and country-specific issues will limit companies’ ability to tap international markets,” Moody’s Vice President Martina Gallardo Barreyro wrote in an emailed statement.

The rating company said low interest rates have helped issuers to refinance debt and extend maturities past 2020, lowering refinancing needs through year’s end.

Trade optimism after the U.S. and China signed a phase-one deal is expected to keep the backdrop encouraging for issuers who had been waiting for the right time to sell. Across global emerging markets, the volume of new debt is up 12.5% from a year ago, meeting investors hungry for yield -- especially in emerging-market corporates, said Cathy Hepworth, co-head of emerging market debt at PGIM Fixed Income in Newark, New Jersey.

Investors will continue to buy up new debt as long as the current search for yield remains, Hepworth said in an interview. “Maybe there will be periods where things sell off, but at the end of the day, they come back again.”

(Updates with Moody’s comment in 11th and 12th paragraphs.)

--With assistance from Aline Oyamada.

To contact the reporter on this story: Sydney Maki in New York at smaki8@bloomberg.net

To contact the editor responsible for this story: Carolina Wilson at cwilson166@bloomberg.net

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