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Bonds from Mexico and Brazil benefit from less political noise

(Bloomberg) – Sovereign debt in Brazil and Mexico are improving, while Latin American analysts say Andean country bonds are likely to continue to underperform as political risks ravage the region and weaken investor confidence.

Mario Castro, strategist at Banco Bilbao Vizcaya Argentaria SA says that Brazil will perform better in the short term, while Mexico will be favored in 2022. “Looking ahead, we could see a positive differentiation in favor of Mexico for two reasons: the long-term stability of the US Treasury bonds will help increase appetite for the Mexican curve, and for the less political noise that there is in Mexico compared to its Andean peers ”.

In Chile, Peru and Colombia, political changes and shifts to the left could make it difficult for the markets to approve the reforms expected, particularly at the fiscal level.

Peru recently held the presidential elections, while Chile has elections in November and Colombia faces a national vote next year.

“Looking ahead to 2022, I am more optimistic about Mexico due to lower political risk, lower risks from US Treasuries and lower tailwinds due to the US rebound,” Castro said.

The strategist also indicated that Brazil could outperform in the short term. “The economic recovery coupled with lower fiscal risk will help local assets. However, towards the next year, the political noise will increase again. Furthermore, the fiscal situation is far from being resolved and it will affect the markets again at some point, ”Castro added.

The possibility that Colombia will experience a second downgrade to speculative grade in its sovereign debt rating is a risk, but the sale is likely to be moderate as investors have already incorporated the probability of such downgrade into prices, Castro said. . Local currency government bonds, known as Coltes, have come under pressure since S&P Global Ratings downgraded the country in May.

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“A downgrade is never positive and the overall fiscal outlook could affect the performance of the Coltes curve in the future, limiting upside potential rather than triggering more sell-offs,” according to Castro.

PRIMARY MARKET

Mexican auto parts manufacturer Nemak sold US $ 500 million in bonds linked to sustainability at par, with a yield of 3.625% Panama placed new National Treasury bonds amid an offer to buy back its global 4% dollar-denominated bonds in circulation maturing in 2024 Colombia plans to reduce the number of long-term debt auctions it holds and sell more of the medium-term bonds that investors are still willing to buy

SECONDARY MARKET

The Argentine province of Chaco received the consent of the holders who own US $ 233.4 million in 9.375% notes due in 2024, or 93.34% of the capital The Mexican cement company Cemex expects to achieve a leverage ratio of 3 times in the Second quarter, said Fernando González, CEO of the company, in a presentation at the Cemex Day event The Argentine authorities are committed to reaching an agreement with the International Monetary Fund no later than the end of March as part of an understanding with the Club from Paris to avoid default

ECONOMY

Brazil’s consumer prices rose in mid-June due to higher transportation and housing costs, adding urgency to the cycle of central bank interest rate hikes The Central Bank of Brazil raised its economic growth forecast for 2021 despite a resurgence of coronavirus cases and concerns about above-target inflation Mexico’s annual inflation accelerated in early June, adding pressure on the central bank just hours before policymakers released their decision On Interest Rates A shift towards tighter monetary policy is rapidly taking shape throughout Latin America; Chile indicated that it is ready to increase its benchmark interest rate in July from a historic low

Original Note: LATAM BONDWRAP: Mexico, Brazil Favored as Politics Plague Andes

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