BanColombia and Brazil’s Banco Votorantim attracted over $5bn of demand for their subordinated tier two bank debt early this week.

This underscored strong investor demand for Latin American financial paper, even in a subdued trading week dominated by fears over European banks’ stress tests results, bankers said.

On Monday BanColombia, launched $620m of 10 year tier two subordinated notes at a spread of 337.5bp over US Treasuries, a yield of 6.341%, to become the first Colombian corporate issuer of the year. The 6.125% coupon for Colombia’s largest financial institution is the lowest 10 year interest rate yet reported for a non-governmental issuer from the copper rich South American nation.

Thanks to $4bn of orders from over 250 accounts, joint bookrunners Bank of America Merrill Lynch and JPMorgan slashed the pricing from initial whispers of 350bp area. The 2020 notes offer a new issue concession of just 5bp-10bp versus their existing 2017 subordinated notes, said a banker on the deal. "The competitive pricing and the huge demand for the deal is a testament to the credit quality of the bank."

Fitch upgraded Bancolombia’s subordinated debt to BB+ from BB in June, citing the bank’s "good asset quality, stable profitability and strong earnings generation".

Some 52% of investors were based in the US, 17% Europe and 31% in Latin America. The domestic investor base overwhelmingly comprised Colombian banks seeking an outlet for their excess dollar liquidity, said a banker on the deal. Some 37% of sales were to asset managers, 24% pension funds, 19% retail and private banks, 15% hedge funds and 5% others, principally insurance funds.

On Tuesday Votorantim capitalised on the rally for its subordinated notes to re-open its 7.375% January 2020 bond for an extra $400m, bringing the 10 year private placement to $1.15bn in total. The tier two bond, with a spread of 404bp over US Treasuries, was announced and priced within hours, after receiving $1.3bn of orders and represents a 20bp concession over the original $750m issue. Joint bookrunners were Bank of America Merrill Lynch, BB Securities, Deutsche Bank, Banco Itau and RBS.

Foreign investor appetite for Brazilian risk has triggered a rally in the country’s financial paper and set off a surge in new issues. Yields on Votorantim’s 2020 bond fell to just 6.7% before the retap.

But the supply of Brazilian bank debt is weighing heavy on some investors. "There are too many mid-sized Brazilian banks in the bond market and all these financial institutions are trying to expand their operations, so there are some concerns about the trading performance of such credits down the road," Esther Chan, portfolio manager at Aberdeen Asset Management, said.