Despite risks stemming from US President Donald Trump’s administration, sovereign issuers in Latin America have made a record start in 2025 for their funding in the international debt capital markets.
The market for sovereign issuers in this region was discussed at OMFIF’s Sovereign Debt Institute’s Latin America sovereign debt outlook in February 2025. The annual virtual meeting brought together a wide range of senior officials, public sector issuers and debt management offices in the region, as well as investors and intermediaries focused on the market.
‘There’s a price for everything,’ said Nick Eisinger, co-head of emerging markets active fixed income at Vanguard, at the virtual meeting. ‘There’s lots of risks in the world around the new administration in the US, which has pretty quickly shown some of their initial colours.’ He added that, ‘some of the risks were beginning to be priced in towards the back end of the year, coming into early 2025.’
Early approach for Mexico
Mexico is one of the sovereigns with the most risks priced in, given the trade tariffs imposed on them from the US and the sensitivity to President Trump’s protectionist policies. As a result, Mexico had to carefully navigate the start of their international issuance this year. However, the sovereign still managed to seal their biggest ever bond at $8.5bn and their biggest ever order book at $33bn, with its three-part transaction on 6 January.
‘We wanted to not do it after the volatility when the US gave the tariffs so we actually did this earlier,’ said Paula Espinosa Núñez, general director of financial operations at Mexico’s DMO.
Mexico’s approach generated a lot of praise. ‘They prepared the market well,’ said Eisinger. ‘Mexican assets, at least, had seen quite a lot of risk premium added back into them, partly in light of the elections in Mexico itself in the summer, as well as the election of Trump in November.’
‘Mexico in particular was in the crosshairs of the new administration, and I think [the DMO] very wisely went to market in both dollars and euros before anything happened,’ said Gordon Kingsley, head of Latin America debt capital markets origination at Crédit Agricole.
Timing the key
Another sovereign in the Latin America region that had to navigate a difficult market environment at the start of 2025 was Uruguay. ‘We had three go/no-gos that were actually no-gos before pulling the trigger,’ said Herman Kamil, head of sovereign debt management at Uruguay’s ministry of economy and finance. ‘So market timing was of the essence, given the market backdrop’.
When Uruguay did eventually come to the market in February, it managed to raise $1.5bn at their lowest ever credit spread for a benchmark bond.
Kamil added that Uruguay is ‘creating incentives’ for banks to enhance the liquidity of their bonds. He added that the DMO is working on having a standardised set of indicators for all its primary dealers on how much they participate in their bonds. Adapting and adding incentives for primary dealers has been a key topic for sovereign DMOs in recent years.
Tighter spreads
It is not just sovereign issuers but public sector borrowers more generally in the region who are making a splash with record demand and low spreads at the start of the year. CAF, the development bank, issued its largest ever bond at $2bn with its biggest ever demand at over $13.6bn with its five-year transaction in January.
‘The outcome was superb,’ said Manuel Valdez, head of DCM funding and derivatives at CAF. ‘If we compare this trade that we did in January with the one that we did last year, which was the same tenor, we had over double the order book’. This year’s deal also came 52 basis points below what CAF was able to achieve in 2024 versus US treasuries.
The strong start to the year for the Latin America sovereign market has been driven by ‘abundant liquidity’, said Kingsley. He described this strong liquidity as a ‘perfect balance between enough coupons for investors but reasonable enough spreads for issuers’. Borrowers are comfortable in getting close to record low spreads while investors are still getting paid attractive coupons due to high interest rates.
‘The question is: can spreads get much tighter? Our view is maybe a little bit if this Treasury market stabilises, but probably the risks as we go later into the year get a little bit asymmetric on spreads that we could have a much bigger widening than tightening,’ said Kingsley.
OMFIF’s Sovereign Debt Institute will be returning with its Global sovereign debt forum on 12 May in London to convene sovereign DMOs, public sector borrowers and portfolios for a series of high-level discussions on the emerging markets. Register here to secure your place.
Burhan Khadbai is Head of Content, Sovereign Debt Institute at OMFIF.
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