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In this publication, we provide our general view and suggest some corporate bond investment ideas in 2H25. Corporate bonds in LatAm (Mexico, Brazil and the Andean countries) have followed a trajectory of yield reduction since April (11) when yields reach a high in line with UST yields in maturities from 3 to 10 years. Yield tightening goes hand in hand with other assets like equity and other fixed income assets delivering positive returns. The trajectory of corporate spreads is also downward but there are differences according to the credit category (IG, HY), LatAm country and sector, based on our calculations. Of particular note in the first fourth months of the year was that spreads were influenced by a negative sentiment due to US tariffs. We are not discarding a potential return to tariff noise in the comings days according to the US President’s agenda, which could reignite risk-off sentiment. The current difference between bonds OAS rated in the range of BB and BBB is c.160bp, close to the minimum of the year. Spread tightening from the highs has been more intensive in BBs than the BBBs. In our opinion, this is in line with the risk-on mood we have seen in last three months. The primary market considering corporates and banks is also performing strongly, and in the 1H25 issuance was c.30% higher YoY, although issuance to date has been concentrated in the 7 to 10-year maturities. How do we suggest playing corporate bonds in this environment? i) focus on 5 to 10-year maturities, as there we have found more value and probably more liquidity. New issuance is also concentrated in this area and many IPTs are above final pricing; ii) some companies in cyclical sectors are focusing on reducing cash burn and cost saving as well as debt reduction and liability management, likely avoiding a credit downgrade e.g., Orbia, Alpek and FUNO; iii) we prefer IG companies related to the extraction of copper or lithium e.g., Codelco, SCCO and SQM rather than precious metals, iron and steel; iv) we now prefer Arauco (Celara) and CMPC than Suzano. The spreads along Suzano’s curve have tighten significantly; v) in the energy space we prefer IG Raizen bonds, as the company have taken several steps to mitigate and reduce their leverage in the future. It is worth noting that some bonds issued by Ecopetrol and Pemex (e.g., Ecopetrol 32 vs. Pemex 32) are now trading similarly. We believe Ecopetrol’s oil and gas operations will continue to perform well and its focus on sustainable energy should be a plus for the company’s continuity and ESG performance. Will Pemex’s bonds continue to rally? We believe so, but only if Mexico grants Pemex debt with an unconditional and irrevocable full guarantee or capitalize the company in order to cover debts and cash burn, for example; vi) Mexico and Chile’s resilient consumption leads us to being positive on Liverpool and Falabella’s bonds. Lastly, as a more defensive play we suggest; vii) the electric utilities in Mexico, Chile and Peru. |