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Foreign Exchange

Latin American debt markets: Local currencies thrive

When Santander Chile priced a $1.2 billion triple-tranche bond in September, one of the tranches was a 10-year peso bond, worth an equivalent $500 million. It was the region’s first Europeso corporate bond since the global financial crisis and an illustration of how investors, especially from overseas, want to capture the yield and carry from Latin America’s local assets.

These local-currency global bonds are not new – sovereigns such as Brazil and Colombia were both active issuers before the financial crisis. Indeed, Brazil sold its first global reais bonds in more than three years last month through a R$1 billion tap of its 2028 notes. The deal, which was priced to yield 8.85% - compared with 10.68% when the 2028s were originally sold in 2007 – was increased from an initial R$750 million on the back of strong demand. One reason was because the government is making it more onerous for foreign investors to invest in the onshore fixed income market through tighter capital controls. An extra R$100 million of the bonds was made available overnight for Asian investors.

Colombia too has been active placing local debt in the international market this year. It sold $800 million of peso bonds due in 2021 in the international markets in April before tapping investors for a further $500 million in July. The latter move took advantage of an upgrade in its credit outlook from Standard & Poor’s. In an illustration of international investors’ enthusiasm for these securities, known as Global TES, the April transaction was priced to yield 7.75%,

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