On Wednesday the 13th, we learned the inflation figure for the U.S. economy, which registered a variation of 1.3% versus the 1.1% expected by the market. What happened in the market? Well, of course, this triggered a sharp sell-off in US bonds, which rose to 3.2% in the case of 2-year Treasuries and 3.06% in the case of 10-year Treasuries. Likewise, agents are already discounting, with a not insignificant probability of 66%, a 100-basis-point hike by the Fed at its July meeting.

This scenario only further complicates market liquidity, effectively ruling out any type of refinancing in the short term for the Latin American debt market. As a result, those companies with credit ratings below investment grade (high-yield companies) will have a Herculean task ahead of them to get their funding plans off the ground funding over the next 1 or 2 years.

In the region, there are 12 corporate bonds that i) trade at high yield, ii) trade at less than 90% of their par value, and iii) mature before the end of 2024. Within this group of companies, we can mention the following in Brazil: the cement company Intercement and the airline Azul; in Mexico, the leasing companies Unifin, Mexarrend, Financiera Independencia , and, the latest to join this list, the telecommunications company Axtel. We will have to see if the market manages to generate opportunities for refinancing these debts and if the CFOs' skills prove sufficient to keep these companies financially afloat.

Adolf Erpel

Money Desk Analyst