Latin Borrowers’ Ringing New Year Endorsement
Brazil and Mexico debuted 2012 10-year issues at below-Europe 3.5 percent range yields on heavy demand hailing net creditor status and good fiscal management and growing banking ties between the region’s biggest economies. Brazil’s leading private lender Itau-Unibanco indicated near-term interest after opening an operation in Colombia, especially to compete for securities underwriting after Latin America completed $150 billion in mergers last year. The government got $825 million in orders for its global bond re-tap after selling out in the first half-hour. Subscribers downplayed disappointing consumption and industrial output figures which kept GDP growth at 3-4 percent as inflation touched the upper 6.5 percent target, as they expect rate cuts to inject stimulus while service prices stabilize. The primary budget surplus will be maintained and state development institution BNDES will restrain portfolio expansion. Other larger public sector companies are undergoing management reshuffles as President Rousseff seeks to install her own professional team and limit the corruption potential that has already forced numerous cabinet departures. Commodity exports have been hurt by an orange juice pesticide scare and portfolio equity flows remain skittish, but the strong foreign direct investment pipeline should firm the real to around 1.8/dollar. Personal loan defaults rose 20 percent, the most in a decade in 2011, according to credit bureaus, but have begun to taper as borrowers deleverage. The improving delinquency story helped Banco do Brasil place a breakthrough perpetual note that lifted its share price after financials took a 20 percent drubbing the past 12 months. On foreign policy the administration also steered clear of the Iranian president’s visit to the continent after former President Lula courted him as an ally and brokered a brief peaceful nuclear enrichment pact. Officials have turned their attention to the hemisphere and recently agreed to authorize an extended stay for Haitian migrants on the second anniversary of the epic earthquake. The country is among a handful to honor original aid commitments, and a major Brazilian executive delegation recently attended a business conference organized by the Inter-American Development Bank.
In Mexico the 3.7 percent yield to maturity was the lowest ever as external debt rollovers for the rest of the Calderon presidency were previously accomplished. The Finance Ministry continued to conduct opportunistic liability management, and the GDP growth forecast has been upgraded to 3 percent on neutral inflation for this election year. The PRI candidate, despite several gaffes, is comfortably ahead in opinion polls, and the peso after a late-2011 battering is widely considered undervalued on both fundamental and econometric grounds. On the anti-drug front cooperation with Central American neighbors along with the US has become a priority as wanton violence selectively crushes celebration spirit.
