EM debt tighter in light, post-holiday volume; primary quiet; Ghana bonds improve 10 bps

By Paul Harris and Rebecca Melvin

New York, July 5 – Emerging markets debt was tighter on Thursday but with cash bonds trading on very little volume and without an obvious catalyst for strength, following Wednesday’s Independence Day holiday in the United States when financial markets there were closed, a New York-based market source said.

Most of the views being expressed on Thursday were through credit default swaps, with a strong rally across names and low-beta credits leading the charges, the source said.

Mexico’s five-year CDS spread was at 115.25 basis points on Thursday as that country’s credit and currency were stable to tighter following the election on Sunday that saw a victory for leftist candidate Andres Manual Lopez Obrador, who will be sworn into office on Dec. 1.

The U.S. holiday sapped staff from desks, and those who returned on Thursday were expected to head out early on Friday following the shortened week to get a jump on a summer weekend, a source said.

New issue activity, already in a summer lull, was also sidelined by the 2018 World Cup international football tournament, now underway and vying for the attention of market participants around the globe, a trader remarked.

Primary market activity was quieted from Asia to Latin America. Concerns over the trade dispute between the United States and China have weighed on sentiment in both markets, but on Thursday Asia remained under pressure while the U.S. markets seemed to shake off fears. A 25% tariff on $34 billion of Chinese goods was expected to take effect on Friday. The Chinese government has said that it will retaliate with the same amount of tariff imposed on U.S. goods.

Although the minutes from the last meeting of the Federal Open Market Committee on June 12-13 showed that policy makers are also concerned about potential fallout from trade conflicts, policy makers said they see the economy is currently strong and hinted that the pace of interest rate increases was on track to continue. Two more 25-bps increases are on tap for this year.

U.S. Treasuries were narrowly mixed, with the shorter end slipping after the FOMC minutes. But overall there was little change heading into the U.S. government’s June payrolls report to be released on Friday. Further job growth and lower unemployment would be supportive of further hikes.

Republic of Ghana’s global bonds, which came in a $2 billion two-part issue in mid-May, were 10 bps tighter with the market on Thursday, according to a London-based bond trader.

They include the Ghana 7 5/8% notes due 2029 and the 8.627% notes due 2049, both of which were priced at par in tranches sized at $1 billion.

The deal calendar might pick up in the week ahead, but new issue activity could just as easily lag into the late August time-frame, the trader said.

Although there is some anecdotal evidence that the cash positions of the accounts may be somewhat above average, investors have money to put to work, the trader said.

The market is presently open to investment-grade sovereign and corporate issuers, whereas higher beta credits will face greater challenges.

© 2015 Prospect News.
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