(Bloomberg) -- Sales of dollar bonds in Latin America are set to jump by around 50% next year from the lowest level in 14 years as the Federal Reserve’s monetary tightening eases, according to bankers at HSBC Holdings Plc.

The Fed’s monetary policy shift to battle the highest inflation in 40 years made it harder for issuers to gain traction in 2022. With the central bank nearing peak rates in 2023, borrowers should become comfortable selling more debt, fueling the rebound.

“I see definitely meaningful increase of emissions as we believe that the Fed will reach sort of the terminal rate at some point, hopefully early next year,” said Alexei Remizov, head of Latin American debt capital markets at HSBC. “We think with the slowdown in the economy and more stable outlook for rates, there will be much better issue windows. I think fixed-income markets are going to be better anchored next year.”

With three weeks to go, sales of dollar bonds this year from Latin American public sector and corporate issuers are running at about $52 billion, down from $125 billion in the same period a year earlier, according to data compiled by Bloomberg. This year’s sales are on track to be the lowest since 2008, when the US subprime mortgage crisis reverberated across the financial markets and prompted the collapse of Lehman Brothers Holdings Inc.

Based on Remizov’s projections, Latin American dollar bond issuance would reach around $78 billion in 2023, which is still over 20% lower than the annual average of the last 10 years, according to Bloomberg data compiling transactions of at least $100 million. Issuance of dollar bonds in 2020 reached a record $137 billion, as governments and corporations took advantage of historically low rates to raise funds, reducing the pressure to issue debt at current interest rates, he said.

The yield of the Bloomberg Emerging Markets LatAm Total Return Index was at 8.1% Tuesday, down from 9.48% reached on Sept. 20, the highest since the Covid-driven lockdowns in early 2020. The recent drop in borrowing costs has prompted Panama and Colombia to return to the bond markets with a primary goal of extending debt maturities to reduce refinancing risk.  

“I think definitely issuers will take advantage of windows to do liability management,” said Remizov. Also “if we see sort of meaningful reduction in volatility and maybe underlying rates become more attractive, we may see issuers using windows for funding exercises too, not just pure liability management.”

Whether that scenario can materialize sooner or later in the year is uncertain. Traders in the US swaps rate markets are pricing in a scenario where the Fed’s rate hikes will continue piling up during most 2023, even as economists sees 62.5% chance of US entering a recession, according to the consensus compiled by Bloomberg.

Read more: Thwarted Latin American Bond Issuers Face Another Chilly Year

While Panama and Colombia decided to price new offerings, other countries such as Paraguay plan to stay away from global bond markets for the time being due to the increase in interest rates, seeking instead to finance spending needs with loans from multilateral lenders early next year. There are other countries in the region planning on a similar path.

Several governments “would be more compelled to go now through multilateral route if they have that capacity and hold back with the hope that the rates will come down so funding costs become more attractive,” said Remizov, while for other sovereigns such as Mexico or Brazil “local markets become an option.”

--With assistance from Daniel Covello and Scott Squires.

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