- International bond sale ending drought since September 2014
- JPMorgan and BofA Merrill Lynch are coordinating deal
The same turmoil that’s roiling Brazil’s government opened up a window for the country’s first bond sale since it was cut to junk.
Brazil sold $1.5 billion of 10-year bonds to yield 6.125 percent, according to data compiled by Bloomberg. The sale comes as speculation that President Dilma Rousseff will be impeached drives down borrowing costs.
Brazil’s bond yields have tumbled to a three-month low on wagers that an ever-widening corruption scandal will bring down the administration and usher in new leadership that’s better equipped to pull the country out of its economic slump. The offer is the nation’s first since September 2014, which was a year before the country lost its investment-grade rating.
“This improvement in market sentiment has paved the way for the government to sell new notes,” said Paulo Nepomuceno, a fixed-income strategist at brokerage Coinvalores CCVM in Sao Paulo. “It’s clear that Rousseff’s government is weak, and the market is pricing that.”
Traders have been pushing up the value of Brazilian bonds, stocks and the currency after months of political gridlock that prevented lawmakers from focusing on kick-starting the stalled economy and closing a crippling budget gap. Brazil’s foreign notes yield 6.5 percent on average, still higher than Honduras, South Africa and Turkey, but down from as high as 7.8 percent in December.
The country still paid 0.5 percentage point more than the average for BB countries, according to data compiled by JPMorgan Chase & Co.
The Treasury saw the recent drop in foreign bond yields as a starting point to consider a sale of debt overseas, Marcia Tapajos, the head of external debt operations, said in an interview last week.
The proceeds of the deal, coordinated by Bank of America Merrill Lynch and JPMorgan, will be used for general budgetary purposes, the government’s filing said.
The real rose 1.8 percent to 3.6263 per dollar on Thursday, extending gains after a news report that prosecutors requested a preventive arrest of Brazil’s former President Luiz Inacio Lula da Silva added to speculation that a change in government may be drawing closer.
Yields on Brazil’s $4.3 billion of notes due 2025, the nation’s most-traded bonds, declined 0.02 percentage point to 5.82 percent.
In another sign of demand for the country’s debt, Brazil’s Treasury offered on Thursday the largest tranche of long-term fixed rate local bonds since May. It placed 4,720 contracts of a total offering of 5,000 contracts maturing in 2023 and 2027, according to data from the Treasury.