NEW YORK: Brazilian bonds were leading LatAm assets higher on Tuesday as a more bullish tone on Wall Street encouraged investors to bargain hunt after last week's sell-off. "It is a rip-fest," said a New York-based trader focused on Brazilian bonds. "Sentiment seems to have changed, and people are being more constructive on Brazil as it has gotten cheap."
Brazilian sovereign bonds were 8bp-10bp tighter, holding up as 10-year US Treasury yields jumped to 2.3% as higher inflation expectations strengthened arguments for a December rate hike. It was a similar story for the country's five-year CDS, which was some 8bp tighter at 415bp.
While tighter US monetary policy weakens credit conditions for Latin American issuers, many market players say they would welcome Fed action next month - and the elimination of uncertainty over the timing of a rates hike. Still, traders were struggling to find specific reasons why Brazil was rallying on Tuesday, and largely put it down to short-covering and some bargain hunting.
"I am seeing a bunch of short-covering, as it is risk-on in the rest of the market," said a second trader. "It is an end-of-year illiquid situation."
Petrobras bonds were up from 3/4 to 1.5 points, with the 2024s quoted at 79.25-80.00. Miner Vale's long-end was also advancing, with its 2042s some 10bp tighter at 543bp-537bp. Bonds issued by mining venture Samarco, which is jointly owned by BHP Billiton and Vale, were essentially flat, however.
They were trading at around 59.50-61.00 despite news that the cost of a recent dam burst at Samara's mine had surpassed insurance caps. Elsewhere, Argentine sovereign debt continued to find support on expectations that market favorite Mauricio Macri would win the second round of the presidential election this weekend. Dollar discounts were up another 1/4 point to trade at 112-113.
"Argentina right now is a bit expensive, but there is still upside," said a broker.
Debt issued by oil exporter Venezuela was also inching higher, even after crude futures dipped 2% on Tuesday as supply concerns re-emerged.
Hopes of a positive outcome for the opposition in next month's legislative encouraged some investors to venture up the curve, where PDVSA 2035s were 1/8 higher at 42.00-43.00.