EM assets weaken amid uncertainty about BOJ, Brexit; Eldorado Brasil, Cosan see activity

By Christine Van Dusen

Atlanta, June 10 – Emerging markets assets ended the week on weaker footing as investors watched the Bank of Japan for further monetary easing and waited to see whether the United Kingdom would leave the European Union.

“The next few weeks have plenty of headline risk,” a trader said. “Risk-off may continue to prevail until there is more clarity on these potentially seismic events.”

Said another trader: “Weak session for global risk assets, as emerging markets credit gets pulled wider and lower.”

Brazil's five-year credit default swaps spreads closed at 348 basis points from 334 bps while Mexico's finished the day at 169 bps from 163 bps.

Latin American bonds drifted lower on Friday after a slightly weaker opening, a New York-based trader said.

“Tried hard to hold yesterday’s close, which is proving tough because after weakening slowly throughout yesterday’s session, we actually strengthened into the close, which I think surprised most,” he said. “Activity and inquiry is very light so far, and I can't say the market is much better offered, although prints so far have been lower on credits like [Brazil's Gerdau SA and Centrais Electricas Brasileiras SA].”

Meanwhile, Brazil-based Vale SA's new issue of 5 7/8% notes due in 2021 that priced at par moved down 1 point on Friday, he said.

BB Securities, BofA Merrill Lynch, Bradesco BBI, HSBC and Santander were the bookrunners for the Securities and Exchange Commission-registered deal.

The proceeds will be used for general corporate purposes.

“Cash prices move lower and bids got hit into the close,” another trader said. “Levels were slightly buoyed by the U.S. Treasury rally, especially long-end bonds.”

Lat-Am declines

High-yield names from Latin America, moved lower on the day, a trader said.

Venezuela's 2027s were down at 44 from 44.75 and PDVSA's 2017s closed at 68 from 69, he said.

Argentina's Bonar 2024s finished at 112.50 from 113.25, and the 2026s ended at 105.25 from 105.75.

“Flows see better selling on the day, with low-beta very well offered,” he said.

In other news from the region, Bolivia is looking to issue up to $1 billion in notes this year, a market source said.

Other details were not immediately available on Friday.

Short end underperforms

From Ukraine, sovereign bonds went into the end of the week with some underperformance from the short end of the curve, said Fyodor Bagnenko, a fixed income trader from Dragon Capital.

“The long end is faring better,” he said. “Bank bonds closed roughly unchanged. Still seeing demand.”

Eldorado prices notes

On Thursday, Brazil’s Eldorado Brasil Celulose SA priced $350 million 8 5/8% notes due June 16, 2021 at 99.008 to yield 8 7/8%, a market source said.

BofA Merrill Lynch, Credit Suisse, BB Securities and Santander were the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used to repay existing debt and for general corporate purposes.

Eldorado is a Sao Paulo-based pulp producer.

Cosan prints bonds

Brazil's Cosan Overseas Ltd. priced $500 million 7% notes due Jan. 20, 2027 at 98.163 to yield 7¼%, a market source said.

BofA Merrill Lynch, Bradesco BBI, Citigroup, HSBC, Itau and Santander were the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used to pay the tender of any 2018 and 2023 notes and for general corporate purposes.

Cosan is an ethanol and sugar company based in Sao Paulo.

“Most Street activity going through is on new issues Cosan, which is wrapped around fixed reoffer, and Eldorado, which is 1 point lower than fixed,” a trader said.

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