WASHINGTON, Oct 8 (IFR) - Renewed appetite for local
currency debt proved to be a consistent theme among Latin
American public credit heads at the World Bank/IMF meetings in
Washington over the weekend.
At a time of ultra low yields across much of the developed
world, local currency debt in emerging markets is proving hard
to resist for investors.
And this could be a boon for countries that have stepped up
efforts to keep inflation under control and adopted prudent
fiscal policies such as Russia, India, Brazil and Argentina.
"It is an old school orthodox play," Ed Al-Hussainy, a
senior rates and currency analyst at Columbia Threadneedle, told
IFR on the sidelines of the event. "How many times are you going
to catch a transition like this?"
Increasing appetite for local bonds fits well with the debt
strategy of EM sovereigns, many of which have long been trying
to broaden the appeal of their local markets among foreign
That need has become even more urgent now given concerns
that a normalization of interest rates in the US could cause the
dollar to strenghten, making hard currency debt more expensive
"We need to prepare for the time when the US Fed starts
normalizing rates," Peru's Finance Minister Alfredo Thorne told
IFR this week. "What we would like is to give more depth to our
local currency market."
Peru took a major step in that direction in September when
it issued around US$3bn equivalent of new 12-year
sol-denominated bonds to finance the buyback of existing US
The country has only 3bn soles of financing needs yet to
fund for 2017 and plans to rely on weekly issuance in the local
Treasury market to raise that cash.
Thorne said the country may now look to buy back some of the
illiquid local Treasury bonds called Soberanos and concentrate
most of its issuance on certain benchmarks to help increase the
depth of the market.
Uruguay is also exploring ways to capitalize on renewed
investor appetite for local currency debt as it seeks to plug
its funding gap next year, the country's debt head told IFR
Moderating inflation and a strengthening peso have helped
the South American nation increase the appeal of its local bonds
at a time when investors globally are struggling to boost
"We see renewed appetite for local currency," Herman Kamil
told IFR on the sidelines of the IMF/World Bank meetings. "We
are always looking for ways to increase stable sources of
funding in local currency."
Uruguay plans to issue about US$2bn-equivalent in local and
international bonds in 2017 to help meet financing needs of
US$2.757bn for that year.
That is up from total bond issuance of US$1.75bn-equivalent
this year, which included a US$1.147bn tap of existing
international bonds the sovereign completed in July.
While Kamil expects to return to the hard currency bond
markets, the country is also considering ways to cater to the
rising appetite for local currency debt.
For now that is likely to occur through the domestic markets
as opposed to the larger Global peso-denominated inflation
linkers the country offered to foreigners in the past, Kamil
This time, investors are increasingly expressing an interest
in buying fixed-rate peso bonds, and the government has already
made efforts to heighten the appeal of the domestic markets, he
Foreign accounts can already freely move in and out of the
market, and also have the option to receive principal payments
in dollars or pesos.
"The easier we make it for foreigners to liquidate their
positions and leave, the more likely they will stay," Kamil
Panama plans to tap the foreign bond markets during the
first semester of next year to cover a portion of its funding
needs in 2017, the country's finance minister told IFR on
The Central American country will raise the US$2.6bn it
needs through international and local debt markets as well as
with multilaterals, said Dulcidio de la Guardia, Panama's
Economy and Finance Minister.
The sovereign, which is rated Baa2/BBB/BBB, will likely
stick to the medium or the long end of the curve, in line with
its strategy of issuing paper of 10 years or more in the
international markets and tapping the local market for
"Our policy is to have an average maturity of 10 years to
reduce refinancing risks," said de la Guardia, noting the
country's curve has flattened of late.
A plan to consolidate balances across thousands of
government accounts at the Treasury level has also allowed the
government to more easily access its cash, reducing the amount
of bonds it needs to issue each year.
"Because of that we are going to avoid issuing this year
US$400m to US$500m," said de la Guardia. "The objective is to
avoid issuing the same amount next year."
A liability management transaction may also be on the cards,
ahead of the country's next big international bond maturity - a
US$1bn bond that comes due in 2020.
"When the time is right we will do a liability management
(operation) for that maturity," he said.
(Reporting by Davide Scigliuzzo and Paul Kilby; Editing by Paul