Capital Flows to Latin America and the Caribbean: 2018 Year-in-Review

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Capital Flows to Latin America and the Caribbean: 2018 Year-in-Review

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In 2018, bond issuance from Latin American and the Caribbean (LAC) slowed, bond spreads widened and credit quality deteriorated. The region saw the best and the worst conditions for tapping international capital markets in 2018. In January 2018, issuers from the region placed their highest ever monthly volume of debt in international markets. On the other hand, December 2018, with no issuance recorded, was the worst December on record for LAC issuers. Bond activity in 2018 was affected by a heavy electoral calendar at the domestic level, and by U.S. interest rate hikes, withdrawal of dollar liquidity, dollar strengthening, and instability in global stock markets. The appreciation of the U.S. dollar, which reduced the appeal of risky assets, increased pressure on LAC assets. Corporate issuance represented 60% of the total. Volatility made a comeback in 2018, which was the most volatile year since 2015 when measuring intraday changes of 1% or more on the S&P 500. Both Latin American stocks and debt spreads were adversely impacted by the increase in volatility and risk perception in global markets. LAC bond spreads widened 149 basis points in 2018, while stocks lost 9.3%. Credit quality in the region continued to deteriorate in 2018. There were 14 downgrades and only 3 upgrades in the region in 2018. Negative credit rating actions (including downgrades and downward outlook revisions) have outnumbered positive actions in the region for six years in a row.


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