Bond issuance lost momentum in 2020
Bond issuance in the local debt market lost momentum in 2020 after four years of growth. Redemptions in corporate debt funds and the uncertainties caused by the pandemic not only reduced the volume of bond issues but also pushed banks to lead the market again as they took on a large part of the securities.
After reaching an all-time high of R$170 billion in 2019, bond offerings with restricted placement (which concentrate these transactions) probably dropped last year for the first time since 2015. Estimates point to a 40% reduction in volume to around R$103 billion - an estimated figure based on data from Anbima, the association of securities firms, indicates that transactions in the year to November amounted to R$90 billion, and the Securities and Exchange Commission of Brazil (CVM), which pointed to more R$13 billion in transactions settled in December through the 28th.
Banks held 72% of the securities in 2020, or close to R$65 billion, according to Anbima data from January to November. In 2019, the same banks held 43% of the transactions, or R$73 billion.
Funds, which in 2019 absorbed R$87 billion, or 51% of the total issued, saw an unprecedented level of redemptions during the crisis and were left with only R$15.5 billion, or 17.9% of what was issued by November.
"In spite of everything, we saw a lot of issuance activity this year. The market failed to absorb a relevant slice, but the banks did their part. In 2021, I think the market will stand out more, expand its share, although without returning to the level seen in 2019," says Daniel Vaz, head of local debt market at BTG Pactual. In numbers, Anbima reported 223 transactions last year through November, compared with 362 in 2019.Lucianna Lorenzo, head of J.P. Morgan's local and international bond team in Brazil, says the domestic market was more impacted by the crisis than the foreign one. "The funds were already coming from a technical adjustment at the end of 2019 and, with less demand for the bonds, the market already started the year frozen," she says.
In the first months of the pandemic, from March to May, the secondary market for bonds became dysfunctional, which generated price distortions and affected primary issues. The trigger came mainly from corporate debt funds, which started to see very high volumes of redemptions and ended up having to sell the securities at any price to return the money to the shareholders. Companies with the best ratings, which at the beginning of...
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