Financing Needs: Brazil Could Join Emerging Markets Bond Issuance Wave

RIO DE JANEIRO, BRAZIL – Brazil could issue foreign denominated bonds still in 2020, in the wake of the increase in emerging countries placements, amid strong investor appetite for higher risk assets.

Debt of Latin America´s largest economy has ballooned to unprecedented levels due to the COVID-19 pandemic and the government faces a US$112 (R$600) billion refinancing cliff early next year, with April’s funding needs the highest ever for a single month.

“If there is a window of opportunity, nothing will prevent Brazil from issuing again in 2020,” said the Treasury to Bloomberg in a reply sent by e-mail.

IIF analysis shows that the government’s domestic debt maturing in April amounts to 3.7% of GDP, also an all-time high for a single month.

According to the Treasury, “foreign currency denominated issues have a qualitative nature for Brazil, since financing needs are met by the domestic market. This provides us with the flexibility to act in the issuances in a timely manner, waiting for a window of opportunity.”

Emerging economy countries have rushed to raise funds in foreign currency in recent days, expanding what should be a record year for the issuance of dollar and euro bonds in these markets.

Optimism over the development of the Covid-19 vaccine has increased investors’ appetite for risk, reducing loan costs.

Peru, for instance, sold a 100-year lower yield bond to a developing country despite the country’s political turmoil, and Turkey, which is emerging from yet another currency crisis, extended dollar and lira denominated debt maturities. Côte d’Ivoire is expected to price debt in euros with a lower yield than last year, despite having received financial assistance from the International Monetary Fund.

Marcos De Callis, strategist of resource manager Hieron Patrimônio Familiar e Investimentos, says it is “strange” that Brazil has not yet issued amid the current window of opportunity.

The sale would help reinforce the Treasury’s liquidity buffer to deal with the “heavy” amount of debt due at the start of next year.

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