Abstract
Purpose – The Brazilian government approved regulations to foster the corporate bond market. In 2009, Instruction 476 of the Comissao de Valores Mobiliarios (the Brazilian capital market regulator) relaxed the requirements for issuing bonds. In 2011, Law 12,431 created infrastructure bonds, which give individuals tax exemptions. Since then, aggregate proceeds have more than tripled. We describe the Brazilian bond market and the characteristics of issues and issuers; and critically evaluate this evolution. Design/methodology/approach – Descriptive analysis. Data on aggregate issuances; bond characteristics (proceeds, maturity, yields, underwriting); issuer characteristics; secondary market (trading); performance (default and renegotiation rates); and allocation of issues. Findings – Bond issues are small and bonds present a short maturity. International agencies are the main ratings providers, using a Brazilian-adjusted rating scale. Fixed-yield bonds are rare. The vast majority of regular bonds are linked to the interbank offered interest rate (DI or CDI). Only two local universal banks dominate the underwriting activity. These banks and their related parties receive more than half of the aggregate allocation. Less than half of issues have an investment grade, and more than half are not rated at all. The incidence of ex-post credit events is most frequently in the form of renegotiations of bond terms. Strict defaults are also high. Liquidity for bonds in the secondary market is low. Originality/value – To our knowledge, this is the first article to describe the microstructure of the Brazilian bond market.
Highlights
The microstructure of bond markets is a subject of research in a wide range of markets
Some constraints apply: distribution is restricted to professional investors (PIs, with investments in securities of more than BRL 10 million); the prospectus can be distributed to at most 75 PIs; the issue can be divided among 50 PIs at most;2 and bonds cannot be floated within the first 90 days after the issuance
3 Data The prospectuses and data on aggregate issuances, the characteristics of issuances, the secondary market, defaults, and renegotiations come from the Brazilian Association of Financial and Capital Market Entities (Associação Brasileira das Entidades dos Mercados Financeiros e de Capitais, ANBIMA)
Summary
The microstructure of bond markets is a subject of research in a wide range of markets. The Brazilian corporate bond market, as part of CNFC, has had little relevance (Carvalho, 2000; Torres & Macahyba, 2014). Billion per year (nearly 270 issues per year) These numbers, when compared to those of the 20052008 period, represent a 0.8% jump in term of GDP (from 0.6% to 1.4%) and 5% in terms of CNFC (from 5% to 10%). CVM-476 and infra bonds together caused a significant change in the structure of the bond market. During the 2012-2017 period, infra bonds accounted for 7% of the proceeds and the number of issues. CVM-400 is still significant for the issuance of infra bonds It accounted for 44% of the proceeds (35% of the number of issues) of the infra bonds issued between 2012 and 2017.
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