Issuers, investors react to Yellen remarks; Rio Tinto inquiry heats up; JBS to deleverage

By Christine Van Dusen

Atlanta, Nov. 18 – Emerging markets issuers remained on the sidelines on Friday as investors digested Federal Reserve Chair Janet Yellen’s latest remarks and continued considering the implications of a Donald Trump presidency in the United States.

Yellen “signaled the U.S. central bank is close to lifting interest rates as the economy continues to create jobs at a healthy clip and inflation inches higher,” according to a report from Schildershoven Finance BV. “Yellen reiterated the expectation of Fed officials that future rate increases will be gradual.”

Meanwhile, the investigation into London-based Rio Tinto plc – which has iron ore mines in Latin America – picked up steam after the former mining minister of Guinea agreed that corruption had occurred.

“Guinea’s former miming minister accused Rio Tinto management of paying bribes for the country’s policy-makers in an effort to receive access to the largest untapped iron ore deposit in the world,” Schildershoven said. “Rio Tinto has already fired two managers.”

In response, the company’s bonds continued to decline, with the 2025 notes trading at 3.3%.

“Currently, spreads to the base curve remain almost unchanged,” the report said. “Possible acceleration of the investigation may trigger further correction.”

Also from Latin America, Brazil-based JBS SA reported that it will focus on deleveraging in 2017. The meat producer recently released an earnings report that showed a decline in three of the last four quarters. JBS is also struggling with legal troubles, as its leaders have been suspended as part of a fraud investigation.

“Current yield looks attractive,” Schildershoven said. “Nonetheless, possible police findings may trigger bond price volatility.”

JBS does not have any plans to sell assets in order to reduce its debt, the report said. “Additionally, the company has no plans to change its hedge policy.”

Volatility for Lat-Am

Elsewhere in the region, volatility continued for risky assets.

“Latin America’s bond market was multidirectional yesterday,” a market source said. “Investors should be prepared for volatility, as there are a lot of possible triggers for its acceleration.”

In trading, Latin American high-yield names finished more or less unchanged, he said, with Venezuela’s 2027s traded at 49¾ bid, 50¾ offered on Friday, up from last month’s 44¼, a trader said.

© 2015 Prospect News.
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