"End of cycle" means sale to last until January Sabesp: Brazil's credit

bonus offers Basic Sanitation Co. do Estado de Sao Paulo SA and Telemar Norte Leste may mark the end of a record year for Brazilian debt and abroad that increase costs.

Sabesp, as the country's largest water service is known, sold $ 350 million 10-year bonds yesterday, while Telemar, the largest fixed line, issued € 750 million ($ 993,300,000) of seven-year notes , snapping a three-week drought and push the issue this year to 40.7 billion. Foreign sales of Brazilian debt rose 62 percent last year and exceeded $ 26 billion in Mexico.

Brazilian companies may be reluctant to sell more bonds this month as a sovereign debt crisis in Europe and rising U.S. Treasury yields raise borrowing costs for emerging market issuers, said Andre Silva, co-director of the Latin American capital markets debt of Deutsche Bank AG in New York. The bond yields dollar Brazilian companies have risen 47 basis points from a low of 4 November to 6.11 percent, according to JPMorgan Chase & Co.

"It's the end of the cycle for the year," said Vinicius Pasquarelli, a trader in emerging market debt in New York, in the tradition Asiel Securities Inc., a unit of Lausanne, Switzerland-based brokerage firm between Compagnie Financière Tradition SA. Borrowers "probably be back until next year," he said in a telephone interview.

The U.S. bond yield a 10-year note rose 20 basis points this week to 3.2, the highest since June on speculation the decision of President Barack Obama to extend the tax cuts adopted under his predecessor may boost U.S. growth , while the worsening of the nation's budget deficit.

Ireland bailout

The $ 1.3 million raised by Brazilian companies this week was the most since the week ended Nov. 10. Issuance fell last month after rising borrowing costs forced Ireland to seek a ransom of 85 billion euros from European governments and the International Monetary Fund and concern caused the crisis in the region of the debt may be extended to Spain and Portugal.

"Concerns about the U.S. economy, and on the side of the Treasury, and peripheral European concerns - these are the two major macro factors to decrease the risk appetite," Silva said in a telephone interview. "The macro backdrop could deteriorate further. That is the dilemma that people have." Should we test the waters now in less than ideal environment and beat the crowd, or wait until January and hope that markets will be better? "

"Natural Hedge"

Telemar, based in Rio de Janeiro, paid 274.5 basis points, or 2.745 percentage points more than German bonds in its first offering in euros. The company paid in euros, which is seeking a "natural protection" to match its operations to Portugal Telecom SGPS, SA, which agreed in July to invest up to 8.4 billion reais ($ 4.9 billion) of Telemar to take advantage of the mobile market in Brazil, Chief Financial Officer Alex Zornig said.

"We do not want to risk waiting until next year," Zornig said in a telephone interview in Rio de Janeiro. "We are always looking to extend maturities and reduce costs. We take this new year window to do this."

Sabesp, based in Sao Paulo, paid 315.8 basis points more than Treasuries of similar maturity in its first international bond issue since 2006. Sabesp officials were traveling and unavailable for comment, the press department of the company, said.

The yield premium on dollar bonds of the government of Brazil on U.S. Treasuries was unchanged at 168, according to the JPMorgan EMBI + index.

Default Swap

The cost of protecting Brazil's debt against default rose five basis point to 110, according to data compiled by CMA DataVision. Swaps credit-default pay the buyer face value in exchange for the underlying securities or the cash equivalent of a government or a company fail to adhere to its debt agreements.

The real rose 0.3 percent to 1.7055 per dollar at 6:30 am New York.

The evening performance of Brazil, the interest rate futures contract in January 2012 fell 5 basis points to 11.93 percent.

The average yield of corporate bonds in Brazil fell one basis point yesterday to 6.11 percent, according to JPMorgan CEMBI index.

Telemar Sabesp was the first Brazilian issuers to sell debt abroad since the Itau Holding Unibanco SA, Brazil's largest bank by market value, sold 500 million reais (293.4 million U.S. dollars) abroad on November 16 . Banco Bradesco SA, Banco Industrial e Comcercial SA and Banco BVA SA withdrew its offer in the same week after a fall in global markets and an investigation into alleged fraud at Banco Panamericano, SA drove up borrowing costs.

'Premium'

Sabesp and Telemar "had to enter the market with some high quality," said Leonardo Kestelman, who helps oversee $ 860 billion in assets at Dinosaur Securities Inc. in Sao Paulo, in a telephone interview.

Deutsche Bank expects sales of Brazilian bonds to increase next month as demand from investors to recover. The Frankfurt-based bank ready 4 billion U.S. dollars in foreign sales of Brazilian debt this year, making it the fourth largest insurer.

"There is a question of whether markets will be better to wait until early next year," said Silva. "Investors have clean balance sheets and more appetite for investing" in January, he said.