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Morning Commentary: Emerging markets debt selling is spurred by stronger dollar; Angola prices
By Rebecca Melvin
New York, May 3 – Selling that has hit emerging market debt for May so far has been sparked by the strengthening dollar and has driven a further drop in the emerging market sovereign bond index since the end of March, a New York-based analyst said on Thursday.
Total return for the J.P. Morgan emerging market global diversified index of sovereign bonds stands at negative 2.3% for the end of March through Thursday. The return for April alone was negative 1.5%.
Russia credit, which was hit by U.S. sanctions imposed against seven Russian oligarchs, 12 of their companies and 17 government officials on April 6, is down 2.3% since the end of March, in line with the overall index. Meanwhile, Latin America sovereign credits performed better than the Central & Emerging Europe Middle East and Africa region, but worse than Asia, the analyst said.
For the year to date, total return for the JMP EMB diversified index is negative 4%.
In addition to the stronger dollar, the market has been hindered by higher Treasury rates, trade disputes, geopolitical risk, as well as the equity correction in February, the analyst said.
There is scope for recovery in EM credit if the dollar stabilizes, but if the dollar has a sustained rally, it could continue to hurt the market, the analyst said.
Meanwhile in primary market action, the Republic of Angola priced $3 billion of notes due 2028 and 2048 on Wednesday.
The $1.75 billion tranche of Angola 8¼% 10-year notes priced at 99.987 to yield 8¼%, or a yield spread of 528.6 basis points over U.S. Treasuries. Pricing was tightened from initial talk in the 8½% area.
And the $1.25 billion of Angola 9 3/8% 30-year notes priced at 99.976 to yield 9 3/8%, or a yield spread of 625.1 bps over Treasuries, with pricing tightened from initial price talk in the 9 5/8% area.
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