LatAm Corporate Bonds — Strong Expectations for 2021, After a Stellar 2020

  • Latin American (LatAm) cross-border corporate issuance has been strong since 4Q20 as investors have sought higher yields due to the US benchmark interest rate remaining at sub-zero levels amid the pandemic
  • Total LatAm and Caribbean (LAC) issuance grew by 23% y/y in FY20; issuance in January 2021 alone represented c.22% of total FY20 issuance
  • Rising US Treasury yields have made investors wary of investing in emerging-market (EM) credits, but higher yields and ample market liquidity are likely to keep demand for LatAm corporate issuance afloat
  • Wide current account deficits, with LAC’s current account deficit at an average of 2.3% of GDP over 2010–19, coupled with low foreign exchange reserves. Foreign exchange reserves of Brazil, Chile, Colombia, Mexico and Peru (the LA5 economies) stood at c.23% of GDP as of December 2020 and at 18% as of December 2019.
  • High proportion of foreign-currency debt — LAC’s external debt as a percentage of exports of goods and services stood at 226.7% in 2020 and 192.6% in 2019 vs 95.7% and 85.9% in EM Asia and 141.9% and 120.9% in EM Europe, respectively. LAC’s foreign reserves in months of imports stood at 8.9 in 2019 vs 11.5 for EM Europe and Central Asia and 7.9 for South Asia.
  • Political instability, coupled with low productivity. LAC’s real GDP grew at an average of 2.0% over 2010–19 vs 7.0% in EM Asia and 3.1% in EM Europe.
  • LatAm economies are leading exporters of commodities, including natural minerals (oil, copper, and iron ore) and agricultural products (coffee and soybean); therefore, they remain dependent on commodity cycles that are priced and traded in USD.

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