Emerging markets quiet ahead of weekend; flat inflation data eyed; Qatar stronger on week

By Rebecca Melvin

New York, July 14 – Emerging markets grew quiet on Friday heading into the weekend, as a lull in new issuance followed a busy midweek. Market players watched volatility in U.S. Treasuries after flat inflation data sent yields lower, a London-based market source said.

“It was a pretty quiet day; people were watching the volatility in rates,” the source said.

The U.S. Consumer Price Index for June came in unchanged with a decline in energy offset by an increase for all items except food and energy. The index for all items except food and energy rose 0.1%.

The yield on the 10-year fell immediately after the data to 2.298% from 2.330% earlier Friday. Later, yields pushed back up to about 2.332%.

A week ago, yields were the highest since May amid weakness in bonds precipitated by fears that major central banks are about to scale back loose monetary policies. But Treasuries stabilized early this week and strengthened on Wednesday after Federal Reserve chairwoman Janet Yellen told Congress that the Fed won’t need to raise interest rates as high as previous cycles amid an uncertain inflation outlook.

Among the week’s notable moves, Qatar’s credit snapped back quite a lot as U.S. secretary of state Rex Tillerson traveled to the country and signed a memorandum of understanding there on Tuesday, a London-based analyst said.

Qatar credit had been under fire since June 5 when a group of Middle Eastern countries led by Saudi Arabia cut diplomatic and trade ties with the tiny Persian Gulf nation, accusing it of supporting terrorism, meddling in their internal affairs, and maintaining close ties with their rival Iran.

In lieu of an agreement among the group of nations, the memorandum between the U.S. and Qatar lays out steps they will take going forward to interrupt and disable the funding of terrorism.

The Saudi-led bloc credited itself for Qatar’s willingness to sign the accord, and Saudi Arabia said that regardless, it will maintain the pressure of the June 5 measures until their demands are met in full.

As Tillerson was leaving on Thursday after four days of diplomatic talks, he said that while the two sides are still not talking, there is a sense of willingness to be open to talking.

The group that has cut off ties to Qatar include Saudi Arabia, the United Arab Emirates, Bahrain and Egypt.

Spreads on Qatar sovereign and Qatari bank notes tightened by roughly 50 basis points this week, the analyst said.

On Friday, Qatar’s 3¼% notes due 2026 were at 98 bid, 98.75 offered, compared to 96.50 bid, 97.25 offered in the middle of last week. The yield was at 3.521% from 3.508% on Thursday, compared to a 52-week range of 2.849% to 3.814%. Spreads have come back in to about 120 on the 2026 paper from 146 bps.

Latin America credit was narrowly mixed. Higher oil prices and positive developments for potential regime change had boosted Venezuela and its state-owned oil company, Petroleos de Venezuela SA, on Monday, and despite a midweek spike in rates, the bonds were back in range on Friday.

Oil prices gained about 4% for the week, with Friday’s solid gain leaving. West Texas intermediate crude oil was up another 50 cents, or 1.2%, on the day to $46.61 a barrel on the Nymex. Brent crude oil jumped another 1.3% to just over $49.00 per barrel.

Venezuela’s 11.95% notes due 2031 were seen around 50.25 on Friday, after having touched a low of 49.7.

Brazil’s credit continued to gyrate, having moved up and down through the week, and with Friday’s reading of the 10-year government bond showing a yield down 1.4% to 10.275%. But the 2027 bonds of Brazil’s state-owned oil company, Petroleo Brasileiro SA, were off about 0.3 point at about 107.5 last, according to Trace data.

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