Morning Commentary: EM bonds stabilize on better oil prices; FOMC eyed; Turkey, Peru trade

By Christine Van Dusen

Atlanta, Dec. 15 – Emerging markets bonds on Tuesday improved slightly, taking a break from their steady widening and lowering, as oil prices stabilized ahead of the Federal Open Market Committee meetings.

“The tone seems to be a touch better as we take a breather,” a London-based trader said. “Most accounts have been on the sidelines, awaiting the Fed, before deploying the cash.”

The Fed, which began its two-day meeting on Tuesday, was expected to announce on Wednesday a rate hike of 25 basis points.

Cash bonds from Turkey were better on Tuesday after a great deal of selling, he said.

“Cash also looks cheap to credit default swaps here, as the Street is probably long of cash,” he said. “One-year to three-year bonds are for sale as everyone tries to avoid front-end exposure to rates.”

Overall, economic data for Turkey “seems resilient,” even without having “a working government for a large part of the year,” he said. “Going forward we should see business activity pick up, now that there is a government in place.”

In other trading on Tuesday, bonds from Peru improved, with spreads moving in, another trader said.

And Brazil was in focus after federal police searched the home of the Lower House speaker, a move that could “put a damper on what otherwise might have been a rally day in Brazil, at least initially,” he said.

And African Export-Import Bank (Afreximbank) saw two-way trading of its 4¾% notes due 2019 in the 102.75 to 103.25 context.

Also from Africa, investors continued to watch South Africa, where the new finance minister spoke and said the government would work to protect the sovereign's investment-grade ratings.

The minister also said the country would “stay on course for financial consolidation,” a trader said. “The reassurances were much needed.”

Still, Fitch Ratings remained unconvinced, according to a statement, and “questions over the direction of economic policy remain.”

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