Latin America today

USD Latam bonds consolidated their recent gains after decent performance these past few weeks. Argentina has been the star lately, much to the surprise of anybody who has actually lived there, with yields now trading well through 8%. The government has successfully managed to re-enter the capital markets with a swap of new debt for old defaulted debt as well as convinced investors that it intends to start reporting its inflation data correctly. Some have said that a ratings upgrade is imminent and that is clearly getting priced in, arguably too much so. Venezuela bonds continue to trade in a range at relatively high yield levels of around 15% as compared to similarly rated US credit due to the country's propensity to issue as many bonds as humanly possible to get Dollars into an economy which seems to be falling apart. Devaluation of the currency seems to have become an annual event and that has contributed to raging inflation rates that are reportedly well north of 30% per annum, electricity shortages have become common, a large portion of private businesses have been nationalized and Dollars have become scarce enough that imports of critical raw materials have not been adequate to maintain production levels. Brazil bonds, the most liquid in the USD sovereign bond market, continue to trade at record tight credit spreads even as some investors have begun to question how long the economic miracle can last. With the change in the Presidential administration this past year, there are some nagging doubts about whether sustainable growth with a manageable inflation rate can be maintained. No one that I know of is predicting a major dislocation in Brazil bonds, but given that they are priced for perfection it doesn't seem like it would take much to cause a correction. Peru bonds have been tracking their Brazilian neighbors. There is an upcoming election there but all of the candidates seem to be sane enough to keep the country on the right track. Colombia still trades a little cheap to Brazil but that is not expected to last long as a credit ratings upgrade from Moody's is imminent, which will allow more people to buy the debt. Mexico bonds have also performed remarkably well this past year and currently trade no more than 10-20 bps wider than Brazil. The Mayor of Oaxaca, Mexico was reportedly shot today and he was the 3rd mayor in Mexico this year (yes, in the past 2 weeks 3 mayors have been shot) to be assassinated. Astonishing is that it has only been two weeks since the start of the year and that the markets have not reacted negatively yet. Colombia originally lost their investment grade ratings when mounting violence severely impacted the country's economy but then the government succeeded in reigning in the drug cartels.Colombia has crawled back to becoming an investment grade country again, at least as far as two out of the three main rating agencies are concerned. Rating agencies stated last year that they were monitoring the situation in Mexico but that violence had not risen to the magnitude yet which would impact ratings. We are waiting to see if this latest serial killing of mayors changes that view. Mexico has typically issued new USD bonds in January yet they have so far been noticeably absent, reportedly due to some staffing changes in the Finance Dept. In this bullish climate for emerging markets it is possible that the latest rash of violence may not have any discernible impact on the debt but we will closely monitor the situation.