On Wednesday the 13th, we learned the inflation figure for the U.S. economy, which came in at 1.3% compared to the 1.1% expected by the market. What happened in the market? Well, of course, this triggered a sharp sell-off in U.S. Treasury yields, which rose to 3.2% for the 2-year Treasury and to 3.06% for the 10-year Treasury. Likewise, market participants are already pricing in—with a significant 66% probability—a 100-basis-point rate hike by the Fed at its July meeting.

This scenario only serves to further complicate market liquidity, effectively ruling out any kind of short-term refinancing for the Latin American debt market, which means companies with credit ratings below investment grade (high-yield companies) will face a Herculean task in getting their funding over the next 1 to 2 years.

In the region, there are 12 corporate bonds that i) are high-yield, ii) trade below 90% of their par value, and iii) mature before the end of 2024. Among 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 addition to this list—the telecommunications company Axtel. We’ll have to see if the market can create opportunities to refinance these debts and if the CFOs’ skills prove sufficient to keep these companies financially afloat.

Adolfo Erpel

Money Market Analyst