The capital markets have not been friendly to Brazilian issuers over the past year, least of all to the sovereign, which at one point was trading at a spread of more than 2,400 basis points over US treasury bonds. Traders had decided that a victory by leftist presidential candidate Luis Inacio Lula da Silva (Lula) would be tantamount to default. After Lula won and appointed a solid economic team, however, spreads started tightening dramatically, and soon it became clear that the market was, in fact, open for the right issuer at the right price.
Although a couple of banks did issue small, short-dated bonds, it was state-owned oil company Petrobrás that really reopened the international capital markets for Brazilian issuers.
Petrobrás is an innovative borrower: it won an award last year for introducing political risk insurance (PRI) to the Brazilian bond market, which subsequently issued dozens of bonds with PRI attached. And because it is a dollar-generating commercially run company with sizeable revenues outside Brazil, Petrobrás was trading at up to 1,000bp through the sovereign during the height of 2002's political turmoil. Even so, it was clear when Petrobrás decided to return to the markets at the end of March that the success of the bond would, in large part, reflect the market's view of the new Workers Party administration, which was now in ultimate charge of the company.