Morning Commentary: EM credit ending tough month on a weak note; Echo Polska eyes euro benchmark

By Rebecca Melvin

New York, May 31 – Emerging markets credit was weaker on Thursday as investors flinched at Trump tariff headlines and was closing out on a down beat in what has been a tough month for emerging markets bonds, a New York-based market source said.

The United States announced that it is imposing tariffs on steel and aluminum imports from Europe, Mexico and Canada. The European Union and Mexico have already promised to hit back. Mexico said it will target U.S. made goods, including laminated steel and pipe products, lamps, berries, grapes, apples, cold cuts, pork chops and cheeses “up to the amount comparable to the level of damage” inflicted by the U.S. tariffs.

The EM market tone was not as sour as it was on Tuesday, when EM and the broader markets were roiled by a sharp sell-off of Italian and Spanish bonds amid political uncertainty that threatens the ongoing viability of the euro market. But the poor showing on Thursday doesn’t bode well for EM heading into June, the market source said.

“It all depends on what happens in Italy” and whether the crisis worsens, the source said.

Political risk in Europe flared up this week just as the worse of currency volatility seemed to have subsided.

The fallout this past month has been uneven. Brazil, given its internal economic challenges in the form of worker strikes, has weakened considerably. Five-year credit default swaps for Brazil have widened by about 50 basis points in the past month to 225 bps from 175 bps at the end of April. But low-beta names did well in the risk-off environment.

In new issue news, Poland-focused Echo Polska Properties NV announced a roadshow for a euro-denominated offering of notes of possibly five-year or similar maturity starting next week.

Deutsche Bank, HSBC and UBS Investment Bank are the joint lead managers and bookrunners of the Regulation S deal.

The real estate investment company is based in the Netherlands but owns residential, office and retail properties with a focus on Poland.

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