August 19, 2015 / 1:56 AM / 4 years ago

UPDATE 2-Peru sells $1.25 bln global bond to fund 'austere' 2016 budget

(Adds comments and details from finance minister)

LIMA, Aug 18 (Reuters) - The government of Peru on Tuesday sold a $1.25 billion 12-year dollar-denominated bond to pay for next year’s “austere” budget, its third tapping of global debt markets in the past year, the finance ministry said.

Demand for the bond reached $5.4 billion after Peru, rated A3/BBB+/BBB+, set initial price thoughts of U.S. Treasuries plus 225bp. The bond sold at 195bp over U.S. Treasuries with a 4.15 percent yield.

Finance Minister Alonso Segura said he was not surprised by strong investor interest. “But it’s always comforting to know there is appetite for Peruvian risk,” he said by phone.

Peru raised about $2 billion in global and sovereign bond sales in March and $3 billion in October.

Segura had told Reuters last month that the Andean country might issue the bonds to help cover falling tax revenues hit by weak economic growth.

Peru’s mining-fueled economy slowed sharply in the past year and a half but has picked up in recent months.

Segura said he expects the still-fragile recovery to gain strength in the second half of 2015, when growth will likely outpace the second quarter’s 3 percent year-on-year rate.

But the 2016 budget would be “austere,” Segura said, declining to offer an estimate. “We’re taking into account variables related to the local economy as well as the global economy.”

Tuesday’s issuance, handled by JP Morgan and Citigroup, was the first government bond sold by a Latin American or Caribbean country since July, according to IFR. It comes ahead of an expected interest rate hike in the United States that could shake up bond markets.

Reporting by Ursula Scollo and Marco Aquino; Editing by Grant McCool and Lisa Shumaker

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