Uruguay likes Global peso market, but at responsible rates


By Paul Kilby

NEW YORK, April 16 (IFR) - Uruguay would like to revisit the Global peso market, but with its fixed-rate local currency bonds trading with double digit yields, costs may still be too prohibitive.

The sovereign broke new ground in 2017 with its first Global fixed-rate peso bonds, after printing 2022 and 2028 bonds in quick succession at yields of 10% and 8.625%, respectively.

"We have told investors and banks that we are keen to continue developing our global nominal peso bond," Herman Kamil, the country's head of public credit told IFR.

"Yet we need to issue at fiscally responsible interest rates. That is key for debt dynamics."

In contrast, the yield on Uruguay's US dollar denominated 4.375% 2031 is now at around 3.9% after rallying about five points to around 104.00 since pricing in January at 99.225.

Concerns over FX volatility and the state of the economy in neighboring Argentina did spill over into Uruguay last year, weighing on its own currency and hence Global peso bonds.

Uruguayan inflation last year rose above the target range partly due to a drought and peso weakness, and stood at 7.4% earlier this year, according to the IMF.

"Devaluation expectations (impacted) the peso curve yet our dollar bonds didn't suffer," said Kamil.

"You could say that exchange rate depreciation was not perceived as a destabilizing factor in the Uruguay economy, otherwise the dollar bond would have suffered."

Uruguay, which faces a presidential election in October, has no need to come to market, though it does tend to prefund in any given year.

And while the dollar market looks particularly attractive against a bullish backdrop for EM, the Finance Ministry is reluctant to issue more dollar debt after having just been in that market.

"Conditions are ripe for dollar issues, but we are always keen to have a careful balance between local and foreign currencies," said Kamil.

"We like to keep our options open but given our financing needs it wouldn't be necessary to be in the dollar market this year."

A global fixed-rate bond is a different story, however, as the sovereign is keen to maintain a stable presence in JP Morgan's government bond index-emerging markets (GBI-EM).

"It is important to keep a stable weighting in the index and part of that is issuing in this market but you have to chose a time when...rates are fiscally responsible."

This article appears in: Politics , Fundamental Analysis , Stocks , World Markets

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