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If the first weeks of 2025 are any indication, the Latin American cross-border bond market could be headed for choppy waters this year. There have certainly been deals so far this year, with Mexico issuing a record $8.5 billion in the US market, and corporates such as Chilean copper miner Codelco and Argentine energy firm YPF picking up funds. Investor appetite for the region’s hard-currency debt remains strong, tamping down how much issuers are paying to borrow. But global bond markets have taken a turn for the worse, with a strong US economy forestalling hopes that interest rates will drop much further this year. So, while investment bankers have lined up bond deals for clients seeking to borrow, this month’s jump in long-term interest rates has put a damper on activity as issuers wait for the outlook for borrowing costs to settle and as they evaluate the market impact of Donald Trump’s return to the White House. “That’s a discussion that everybody’s having,” said Andrés Copete, director for Latin American debt capital markets at Deutsche Bank in New York. “We’re having it with our clients who are ready to go every day.” Aaron Gifford, a sovereign credit analyst at T. Rowe Price in Baltimore, said some issuers are likely to wait and see how rates evolve. There don’t seem to be “too many issuers out there desperate to borrow,” he said. SALES SURGE The prevailing caution could depress bond volumes for 2025, which Copete said could be flattish following last year’s boom. Cross-border bond sales by Latin American sovereigns and corporates jumped a year-over-year 30% to $157.9 billion in 2024, a three-year high, according to LSEG data. At 635, the number of deals was the second highest of the past decade. Brazilian issuers led the way with 31% of the total volume, followed by Mexicans with 15%, Chileans with 8% and Colombians with 6.5%, the data show. Sarah Glendon, an emerging markets fixed income analyst at Columbia Threadneedle Investments in New York, said that among the possible bright spots this year, Brazil and Mexico could have a busy year as they finance large budget gaps. She expects Mexico to seek some $10 billion to $15 billion, a chunk of which it has already covered with its January 6 deal. However, she said the Mexican government’s budget assumptions appear to be “too optimistic,” which will likely force it to borrow more to finance the deficit. As for Brazil, where the markets are worried that the government’s plans to cut spending aren’t aggressive enough, Glendon expects the sovereign to seek some $7 billion in financing, though the “risks are skewed to the upside.” In the region’s corporate debt segment, Deutsche Bank’s Copete said bond sales by oil and natural gas companies remain strong. Mexican issuers are likely to be heavier borrowers, too, after a quiet 2024. Firms in Peru and Colombia should also turn to the market this year, he said, as they look to get ahead of their countries’ elections in 2026. But the biggest question is what will happen in the United States when Trump returns to the presidency on January 20. TARIFF THREATS Mexico is in the Republican’s sights, as he plans to use the threat of tariffs to negotiate tougher border and drug policies from its president, Claudia Sheinbaum. Juan Pablo Fuentes, an economist at Moody’s Analytics, said he expects Mexico’s GDP to grow just 0.6% this year — its weakest pace since the COVID-19 pandemic. Any retaliatory tariffs from Sheinbaum’s administration are likely to keep inflation elevated in Mexico, pressuring its central bank to maintain high interest rates, which would reduce spending, Fuentes said. Government spending cuts will also take a toll. And if Trump revives his trade war with China, this could hurt foreign investment in countries such as Chile and Peru, whose exports of copper and other metals rely heavily on Chinese demand. Even so, Andy Brenner, head of international fixed income at NatAlliance Securities in New York, said that there’s a chance that the “bark will be a lot more than the actual bite” from Trump’s trade chatter. But it may take months for those policies to crystallize, putting a cloud over Latin American bonds for some time, he warned. In the meantime, the likelihood that US interest rates will stay high and a stronger dollar doesn’t “bode well” for the region, Brenner said. “I think Latin American bonds are going to be under pressure for at least the first half of the year,” he said. DISTRESSING NEWS That would be unwelcome news, particularly for distressed issuers in the region, such as Argentina, Ecuador and El Salvador, said Gifford from T. Rowe Price. Distressed credits “had a fantastic run over the last few months,” he said. “But a new ‘higher-for-longer’ narrative in the US, if prolonged, could have a detrimental effect on these kinds of borrowers.” Plenty of investors are still buying bonds from the region, as they look to get the juicer returns that come with emerging-market debt. However, in Latin America at least, those returns are getting a bit less succulent. Credit spreads, which measure how much investors will get paid for taking on risk, have narrowed in recent months. Healthy financial trends among the region’s corporates are helping drive spreads down, Deutsche Bank’s Copete said, a positive sign that borrowers remain on track with repayments. The flip side is that some investors are griping that they’re not getting paid enough to compensate them for the risk that conditions could turn worse. Even so, they’re “still buying,” Copete said. “They basically have cash burning a hole in their pocket. So, they buy paper, even if they think that spreads are too tight.”
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