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Latin American companies have been lining up to tap the U.S. bond market in search of cheap funds as interest rates have fallen to historic lows this year. Investors, hungry for yield, have been happy to oblige. Companies domiciled in Brazil, Chile, Mexico and other countries in the region have sold $68-billion (U.S.) of corporate bonds this year, a record amount and up from $58-billlion in the whole of last year, according to Dealogic. The allure is clear. The average yield on Latin American corporate debt sold in dollars stands at 4.3 per cent, the JPMorgan CEMBI Broad Index shows. By contrast, high-grade bonds sold by U.S. companies yield 2.7 per cent on average, according to a Barclays index.

But yields are just part of the meal. A growing number of investors are acquiring a taste for emerging market bonds based on the region's growth prospects, which have become far juicier in recent years than those throughout much of the developed world. That demand drives down yields, making it even more attractive for Latin American companies to borrow in dollars than in their home markets. The yield on the JPMorgan index has fallen a percentage point this year. Buyers have been rewarded with 12-per-cent returns in the year to date.

About 80 per cent of the issuance boom this year has been from investment-grade companies, including some of the most prominent names in the region, such as Petrobras, Brazil's national oil company, and Codelco, the Chilean copper producer. But if things sour for an issuer, questions remain about creditors' rights in some of these countries. Just ask the hedge funds battling Vitro, the Mexican glass maker, over loopholes in the country's bankruptcy code that they claim force losses upon them rather than shareholders. As the old saying goes, there's no such thing as a free lunch.

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