Contents

Introduction

The bond market in Latin America saw a turning point with Donald Trump's triumph in the US presidential election. The 10-year US Treasury rate, which acts as the benchmark for country risk premiums, jumped from 1.8% on November 8 - election day - to 2.6% at the end of last year. Projections that greater stimulus to demand would boost inflation, and force the Federal Reserve to apply a faster-than-expected rise in interest rates, drove that rise.

With the sharp increase in borrowing costs, governments and companies in Latin America decided to postpone at least US$10 billion in international bond issues in the last two months of 2016. However, in the first months of this year the clouds over the region's bond market began to clear, at least for the short term. The Fed's refusal to launch a series of aggressive rate hikes left the door open for capital to continue flowing into the bond market. Added to that are the difficulties Trump has had passing laws in the US congress, which suggests it will not be easy for him to carry out his proposed tax reform. In that context, yields on medium-term Latin American bonds in dollars (maturing in 2026 and 2027) have been recovering in recent weeks much of what was lost in the days following Trump's victory.

This change in trend and the need to anticipate the rate increase schedule envisaged by the Fed encouraged Latin American issuers to return to the bond markets in the first quarter of the year. Demand for Latin American bonds remains firm. Yields on sovereign and corporate bonds in countries where macroeconomic indicators remain strong are an attractive option for global investors. However, everything indicates that the ups and downs that the market has seen in recent months will continue throughout the year given the high volatility.

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