THE United Nations Economic Commission for Latin America and the Caribbean, known as ECLAC, UNECLAC or in Spanish-speaking countries — as CEPAL indicates that bond market deal flow for the region slowed in 2022 due to tightening financial global conditions. However, the proportion of green bonds has risen in the region.

A green bond is a type of fixed-income instrument earmarked to raise money for climate and environmental projects and usually carry the same credit rating as their issuers’ other debt obligations.

CEPAL, on its website of the same name, in a review published in October, said that “after breaking an annual record in 2021, total Latin American and Caribbean (LAC) bond issuance in international markets slowed considerably in the first eight months of 2022.”

CEPAL outlined in its report: “Against a backdrop of tightening global financing conditions, total Latin American and Caribbean bond issuance in international markets in the first eight months of 2022 was down more than 50 per cent from the same period in 2021.”

CEPAL said that LAC issuance of green, social, sustainability and sustainability-linked bonds also slowed down in the first eight months of 2022, but less than total overall issuance. Their share in the region’s total overall issuance increased to 34 per cent from 31 per cent in 2021.

The CEPAL Review was founded in 1976, along with the corresponding Spanish version, Revista de la cepal, and is released three times a year by the United Nations Economic Commission for Latin America and the Caribbean, which has its headquarters in Santiago, Chile.

Higher borrowing costs

The United Nations agency also noted that borrowing costs for LAC issuers increased by 100 basis points in the first eight months of 2022, amid rising financing costs and weaker risk sentiment, and reached a peak in June 2022. At 499 basis points at the end of August, LAC bond spreads were 127 basis points higher than pre-pandemic levels.

In the first eight months of 2022, the MSCI Latin American index which captures large and mid cap representation across five emerging markets (EM) countries in Latin America lost 0.2 per cent, but it outperformed the emerging markets and the G7 indices.

CEPAL said in its October report that Latin American equity prices have also lost some of the ground they had gained earlier in the year. According to the index, Latin American stock prices were down 24 per cent in the second quarter, after gaining 26 per cent in the first.

Positive credit outlook

CEPAL noted that, overall, the region’s credit outlook has trended upwards in 2022 so far, supported by lower funding needs and greater reliance on local markets. As of August 31, 2022 there were four more positive credit rating actions than for the comparable period last year.

Barbados has been one of the most active participants in the green bond market, swapping sovereign debt for cheaper forms. In September the island’s government issued the world’s first government bond with a clause allowing payments to be suspended in the event of another pandemic.

Finalised in a deal with bankers on Wednesday, September 21 the bond, to be repaid over the 15 years, will be the first to allow a government to suspend its payments if another outbreak similar to COVID-19 occurs. Payments can be suspended for up to two years at a time and twice if necessary but cannot be canceled altogether.

Under the deal, Bloomberg outlined how Barbados spun $150 million of its sovereign bonds into cheaper debt, striking a deal to buy back a portion of its $531 million bond due in 2029, replacing it with lower-cost debt that comes with repayment guarantees from The Nature Conservancy and the Inter-American Development Bank.

As part of the deal, the nation is also buying back a portion of its 8 per cent local-currency notes due 2043.