Pandemic changes Latin America’s bonds landscape, ECLAC says

The spread of the COVID-19 pandemic, together with a precipitous decline in commodity prices, radically changed the financial landscape for bond issuers in Latin America and the Caribbean in the first quarter of 2020, according to a report by the Economic Commission for Latin America and the Caribbean (ECLAC).

After a record breaking issuance of $38 billion worth of bonds in January, bond issuance dried-up in February and March, bringing total quarterly issuance to $45 billion, according to an ECLAC report, ‘Capital Flows to Latin America and the Caribbean’.

On March 26, however, Panama successfully placed a sovereign bond in cross-border markets to secure additional resources to combat the COVID-19 pandemic. It was followed in April by another four sovereigns from the region – Peru, Guatemala, Mexico and Paraguay – all tapping international debt markets with sizeable issuances for coronavirus funding.

There was strong demand for the bonds. Together, these five sovereign issuances amounted to $13 billion in new cross-border bonds.

There were five international green bond issuances in the first quarter (all in January), two new and three re-openings, and a social bond placed by Ecuador, which became the first sovereign issuer to sell
social bonds in the international market. In April, Guatemala issued $500 million in social bonds to finance eligible social investments directly and indirectly related to COVID-19 prevention,
containment and mitigation efforts.

The shocks of the COVID-19 pandemic and the plunge in commodity prices were amplified by greater risk aversion, with volatility reaching a historic peak in mid-March. Latin America and Caribbean spreads widened 357 basis points in the first quarter as a result, and were at 703 basis points at the end of March, close to the peak reached in November 2008 during the global financial crisis (765 basis points), according to the report.

Equities and currencies in the region also weakened significantly amid the coronavirus outbreak. The MSCI Latin American index was down
46% by the end of March.

There were nine more negative credit rating actions than positive in the region in the first quarter. In April alone, there were fourteen negative actions, eleven of them downgrades. All of the negative actions
in April mentioned the impact of the coronavirus outbreak and of plummeting commodity prices. The commodity-exporters of the region, particularly oil-exporters, were the hardest hit by the downgrades.