Morning Commentary: Market quiet; Peru’s Kuczynski survives impeachment vote

By Rebecca Melvin

New York, Dec. 22 – Emerging market credit was moribund on Friday and likely to remain light next week during the business lull between the Christmas and New Year’s holidays.

“Nothing today,” a London-based trader said when asked about flows.

News out of Latin America that business-friendly Peruvian president Pedro Pablo Kuczynski survived an impeachment vote of the opposition-controlled Congress late Thursday wasn’t expected to boost bonds since there is a chance that the leader may still step down.

“There’s a slightly higher chance of him holding on, but it’s still below 50% because he may still resign, saying he recognizes that his staying on from a political standpoint would be counterproductive,” a New York-based market source said late Thursday before the vote result was known.

“It’s better not to be impeached because that implies that somehow or another you are guilty. But he may still resign,” the market source said.

The impeachment vote came up suddenly when documents came to light last week that Kuczynski allegedly accepted kickbacks from the Odebrecht SA construction company more than 10 years ago when he was economy minister under then-president Alejandro Toledo.

Kuczynski denied knowing about the payments. He survived the 78-19 congressional vote in favor of impeachment, which fell shy of the two-thirds majority required for such action. There were also 21 abstentions.

“The Congress in Peru is dominated by the opposition, and it is ironic that it is ignoring the fact that they face the same accusations regarding taking illegal contributions from the same company,” a market source said.

Peru is an investment-grade rated sovereign credit, but the bonds are illiquid and do not trade actively.

The political rivalry is a bigger impact on the local currency market than the international market, a market source said.

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