(Bloomberg) -- A debt-sale bonanza that saw Latin American borrowers rush to global markets at the fastest pace in three years is set to peter out in 2025.
Record government bond sales, a slew of first-time borrowers and a pickup in Argentina corporate transactions propelled $127 billion of issuance abroad last year, a 42% jump from 2023. The biggest underwriters of those deals are forecasting a similar, or even slightly higher number this year.
Standing in the way, though, are questions over the Federal Reserve’s path on interest-rate cuts, Donald Trump’s return to the White House and concerns over China’s economy. Political risks flaring up in countries like Brazil and Colombia, plus a spate of elections, could also put a dent in the debt spree.
It’s a litany of challenges shared across emerging markets. But Latin America issuance is more sensitive to the outlook for the US economy and rates, said Sergey Dergachev, head of emerging-market corporate debt at Union Investment Privatfonds GmbH in Frankfurt.
“Latin America will continue issuing but will be selective,” he said. The region “will have to navigate between Trump’s new economic and geopolitical policies and the Fed reaction function. The environment can become more volatile.”
The big driver is how quickly the Fed will move to lower rates, with traders recently paring bets to just two cuts this year. They’ll be watching for clues on whether measures planned by the Trump administration — from tariffs to mass deportations — will fan inflation, translating into fewer cuts and narrowing the window for debt sales.
Investors have been moving their money out of emerging-market debt, with outflows from global EM bond funds totaling $24 billion in 2024, according to EPFR data compiled by Bank of America Corp.
It’s a turnaround from a year ago, when the prospect of the Fed’s first cut since 2020 prompted governments and companies to test markets, where they found strong demand from buyers flush with cash.
Mexico and Brazil posted record deals in a January spree. Companies that had never borrowed internationally saw their offerings oversubscribed. And so-called cross-over investors sought out deals from Latin America as US credit spreads tightened.
“We’re in all-time low spreads, but we’re benefiting from what’s going on in the US and the crossover to get to that level, not because of our own merits,” said Lisandro Miguens, head of debt capital markets for Latin America at JPMorgan Chase & Co.
It all added up to the strongest bout of sales since 2021, a “fantastic year,” said Adrian Guzzoni, head of debt capital markets for Latin America at Citigroup Inc.
Citi and JPMorgan, which led the underwriting business from the region last year, both forecast volumes in 2025 should be roughly in line or even slightly above last year’s figures — although likely still below the $153 billion recorded in 2021.
JPMorgan forecast $9.9 billion in new issuance from Latin American banks in 2025, marking a decline from the $11.5 billion sold in 2024, analyst Natalia Corfield wrote in a note.
The main driver will be borrowers seeking to refinance debt, according to Goldman Sachs Group Inc. About $52 billion worth of bonds are set to mature in the next 24 months, strategists including Nathan Fabius wrote in a report last month.
On Monday, Saudi Arabia, Mexico and Brazilian meat producer JBS SA announced bond offerings. Slovenia also hired banks for a possible debt sale.
Slowing Sales
Roughly half of the issuance will come from companies. BofA expects corporate debt sales to total $60 billion this year, with nearly one-fourth coming from Brazil. The bank, however, said sales are likely to slow as the year progresses, given the possibility of higher rates to fight inflation.
The forecast also assumes Mexico’s state-run Petroleos Mexicanos — one of the region’s biggest borrowers and the world’s most indebted oil company — will remain out of the market.
“Most companies front-loaded borrowing as they don’t know what Trump will bring,” said Omotunde Lawal, head of EM corporate credit at Barings Investment Services. “If rates stay higher under Trump with more volatility, then we may see lower volumes.”
Governments, which traditionally come to market first, will be forced to contend with the impact of the Trump presidency not only on global rates, but also the dollar. The greenback saw its best year in almost a decade in 2024, with just three out of 23 emerging currencies tracked by Bloomberg ending the year with slight gains versus the dollar.
For Latin America, political risks abound at home too. Growing concern about budget deficits has been plaguing markets from Brazil to Colombia, while Mexico approved a sweeping overhaul of the judicial system that some including Moody’s Ratings say risks eroding its checks and balances. Investors will also watch for presidential elections in Chile and a legislative vote in Argentina, all of which could bring volatility and dent sentiment.
“There are still doubts about emerging markets,” JPMorgan’s Miguens said, “particularly Latin America, when it comes to fundamentals.”
What to Watch
- Investors will monitor the release of consumer price data in countries including Chile, Mexico, Colombia, Brazil, Thailand and China
- Mexico’s central bank is set to publish the minutes of its latest meeting; Bloomberg Economics expects policymakers to keep a cautious tone, curbing expectations for an acceleration in the easing cycle
- Traders will parse through industrial production data from Turkey, India and Mexico
- India is set to unveil its first advance estimate of GDP growth for the year through March 2025
--With assistance from Jorgelina do Rosario.
(Updates with JPMorgan forecast and new sales starting in 13th paragraph.)
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