Sovereign Latin American Eurobonds

Resumo

This research study evaluated statistically the importance of bond structure, financing activity, and issuer characteristics to the relative yield spread for fixed-rate Latin American Sovereign Eurobonds. Higher grade issuers pay a relatively higher spread to borrow long-term funds and for larger issues; the findings are consistent with the notion of a term structure "liquidity" premium and a "market congestion" premium. Low-grade countries obviously pay a higher spread than countries assigned a better international credit rating. However, low-grade countries pay a relatively higher spread to borrow shorter term funds and for the inclusion of a call option; the findings are consistent with a term structure "crisis-at-maturity" and the higher probability that low-grade countries will later find it advantageous to refinance a fixed-rate bond. Sovereign borrowers appear to achieve lower relative yield spreads by repeatedly issuing securities. Although the sovereign Eurobond market has increased in importance during the last two decades, the growth has not proven consistent. Investors seek safety over yield during periods of economic contraction, and adverse region-specific events.