Brazil Bond Market Has Busiest August in a Decade

 Banco Bradesco SA’s $1 billion bond sale is making this month the busiest August since 2000 in the Brazilian market as a rally sends corporate borrowing costs to near the lowest on record.

The offering yesterday by Bradesco, Brazil’s second-largest bank by market value, of 10-year subordinated notes at 5.95 percent tops the country’s August bond sales in each of the past nine years, according to data compiled by Bloomberg.

While August is traditionally the slowest month of the year, accounting for less than 1 percent of overseas sales since 2005, it’s more active this year as issuers take advantage of declining yields, said Andre Silva, co-head of Latin American debt capital markets with Deutsche Bank AG. More companies may sell debt this week as they reinitiate plans they scuttled in May when Europe’s debt crisis eroded demand for emerging-market securities, he said.

“This is a very atypical month of August,” Silva said in a telephone interview from New York. “There’s a backlog of deals that were supposed to hit the market in May and June, and they’re coming now.”

Deutsche Bank is the second-biggest underwriter of Latin American bonds sold in international markets this year after JPMorgan Chase & Co., according to data compiled by Bloomberg.

The average yield on Brazilian corporate bonds has fallen 58 basis points, or 0.58 percentage point, to 6.21 percent since reaching a 2 1/2-month high of 6.79 percent on May 7, according to JPMorgan’s CEMBI Broad Brazil index. The yield is within two basis points of a record low of 6.19 percent reached April 21.

Treasuries Rally

A rally in U.S. Treasuries, the benchmark for emerging- market dollar-denominated bonds, has helped push down Brazilian borrowing costs. The yield on 10-year Treasuries touched a 16- month low of 2.81 percent on Aug. 6 after U.S. companies added fewer jobs than analysts expected in July, a sign the expansion in the world’s biggest economy is slowing.

Bond sales across Latin America this month have totaled $1.9 billion, the most for a month of August since 2003, data compiled by Bloomberg show. Empresa Nacional del Petroleo, Chile’s state-owned oil refiner, sold $500 million of 10-year notes to yield 5.3 percent while the Argentine province of Cordoba issued $400 million of seven-year bonds to yield 12.38 percent in its first international offering.

“Look at the size of deals, order books and demand, and you realize that investors are still at their desks” and not taking August vacation, Doug Chen, head of international fixed- income distribution at Itau Unibanco Holding SA, said in a telephone interview from New York. “If you’re a new issuer and ready to go, you can do a roadshow.”

September Rush

Some companies are choosing to sell debt now to get ahead of an expected surge in offerings when the market picks up in September, Silva said. Banks will be among the biggest issuers, he said.

“The first weeks of September are going to be very heavy out of Brazil and the rest of Latin America” Silva said.

Brazilian banks have sold a record $11.4 billion of international bonds this year, including $3.9 billion of subordinated notes, to help finance loan growth.

Bradesco issued the unsecured subordinated debt due in January 2021 to yield 312 basis points more than Treasuries, Bloomberg data show. An official in the press office at Osasco- based Bradesco declined to comment on the sale. In April, the bank issued $250 million of three-year senior bonds to yield 160 basis points above Treasuries.

August Vacation

Sales may slow after this week as U.S. and European investors leave for vacation, said Robert Carlson, a debt capital markets director at Barclays Plc.

“It’s not uncommon for the first couple of weeks in August to be active,” Carlson said in a telephone interview from New York. “This August we’re probably seeing even higher volume than normal because yields are attractive for issuers and investors have a lot of cash to put to work.”

The extra yield investors demand to hold Brazilian dollar bonds instead of U.S. securities narrowed three basis points to 191 at 9:38 a.m. in New York, according to JPMorgan.

The cost of protecting Brazilian debt against non-payment for five years with credit-default swaps fell two basis points to 112, according to data compiled by CMA DataVision. Credit- default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

‘Hunt for Yield’

The real lost 0.7 percent to 1.7616 per dollar. Yields on the interest-rate futures contract due in January added one basis point to 10.77 percent.

Brazilian international debt sales are heading to the busiest year on record. The government and companies have issued $21.2 billion since January, surpassed only by 2009’s full-year figure of $25.3 billion.

Demand for Brazilian debt will remain strong because sluggish U.S. growth will hold down Treasury yields, said Jeremy Brewin, who manages $1.9 billion of emerging-market assets with Aviva Investors in London.

“The hunt for yield is still in place for another few quarters,” Brewin said in a telephone interview. Bond sales will “be absorbed quite easily,” he said.