Equity sell-off, oil decline hurt spreads, sentiment; rally in Treasuries cushions blow

By Christine Van Dusen

Atlanta, Dec. 7 – Emerging markets debt spreads were wider on Monday as a sell-off in equities and the continuing decline of oil prices hurt risk sentiment.

Against this backdrop, Honduras-based microfinance lender Central American Bank for Economic Integration priced a CHF 55 million add-on to its 0.194% notes due Nov. 19, 2021 at 99.576 to yield mid-swaps plus 68 basis points, a market source said.

UBS was the bookrunner for the deal.

In trading, the curve for Brazil's bonds was “ridiculously steep” on Monday, a trader said.

“The new Brazil 2019s have outperformed the 2025s by about 90 bps in 2015, which – with spreads in the belly still well north of 400 bps – does not make sense from the standpoint of credit fundamentals,” he said.

Said another trader: “Brazilian sovereigns, the [currency] are still outperforming. Credit default swaps are tighter by 3 bps to 4 bps too.”

Mexico's curve is another anomaly, another trader said.

“Huge pick-up in yield and z-spread, considerable improvement in liquidity, and about the same dollar price,” he said. “Still trading heavy, particularly the long end.”

Panama's bonds were mostly unchanged on Monday and bonds from Colombia faced “horrendous liquidity,” a trader said. “Generally weaker across the curve.”

In the afternoon, trading of Latin American bonds was “super-quiet,” a New York-based trader said. “Spreads [are] a lot wider. If oil does not stabilize, we will continue to trade very poorly in extremely bad liquidity.”

Spreads widened into the close, with Brazil’s five-year credit default swaps spreads closing at 454 bps from 449 bps and Mexico's at 164 bps from 159 bps, a trader said.

Prices lower slightly

Cash prices for Latin American assets ended the day just slightly lower, as a rally in U.S. Treasuries helped “cushion the effects of spread widening,” a trader said.

Among high-yield names, Venezuela saw its prices climb amid optimism about the country's congressional elections.

The sovereign's 2027s closed at 45 from 42 and PDVSA's 2017s finished the day at 61.75 from 60.50.

“Prices did hit a bit of a wall as [the] market had to cope with oil weakness, which added some pressure,” he said.

Finansbank in focus

The market continued to keep an eye on Turkey’s Turkiye Finans Katilim Bankasi AS (Finansbank), which could be sold by owner National Bank of Greece by March of 2016, a trader said.

A fund from Qatar and BBVA – through Turkiye Garanti Bankasi AS – is believed to be in the final stage of bidding on Finansbank.

But some experts think Qatar National Bank “is the most likely buyer,” he said. “But we also see potential value if ING turns out to be the buyer.”

ADB prices add-on

In other news, African Development Bank priced an additional $250 million of its 1 5/8% notes due Oct. 2, 2018, according to a company filing.

The notes came to the market at 100.79 and will be consolidated with the bank’s existing $1 billion 1 5/8% notes due in 2018, which were issued on Oct. 2.

Bank of Montreal and Toronto-Dominion Bank were lead managers.

African Development Bank is based in Abidjan, Ivory Coast.

© 2015 Prospect News.
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