Latin America sees secondary market strength; Petrobras outperforms; EM primary mostly quiet

By Rebecca Melvin

New York, June 26 – Existing bonds in emerging markets enjoyed a positive tone on Monday, albeit on light volume, while the new issue market was very quiet as attention started to turn to upcoming summer holidays in the United States and elsewhere.

Brazil saw a nice move up on Monday, a New York-based trader said. The credit was up ½ point to ¾ point across the board, including both short- and long-dated paper.

Petroleo Brasileiro SA was outperforming the sovereign curve, but both were better, the trader said.

Crude oil prices, which slid into bear market territory last week, were up a little bit again for a third straight day, which was supportive; but the strength was attributed primarily to flows into the asset class and the fact that most markets, including commodities, were “doing reasonably well,” the trader said.

“We saw buying overnight and buying into the early morning. It has come off somewhat, but we are still hovering near market highs,” the trader said at midafternoon.

While several Brazilian economic reports are due to be released this week, those data points including Brazil’s balance of payments for May, first-quarter external debt, May unemployment numbers and April wages, are not especially important for dollar- and euro-denominated debt, although they may move the needle on local currency debt and foreign exchange markets.

Argentina and Venezuela were also higher on Monday’s session.

Argentina’s new century bond due in 2117 was quoted up at 93.85 bid, 94 offered, which represented another lift from a week ago when $2.75 billion of the notes were issued.

“We’ve seen buying and it’s up,” a trader said of the new ultra-long Argentine notes.

Argentina’s notes due 2046, its next longest-dated paper, were also better on Monday, trading at 106.5.

“That’s up as well. Everything is strong: it’s a bull market,” the trader said.

While volumes were expected to remain light for much of the week heading into the U.S. Independence Day holiday weekend, other credit investors are looking for exposure in emerging markets, and the higher demand for hard-currency, fixed income assets means that emerging markets are likely to remain firm, the trader said.

Venezuela’s bonds, which had been down sharply for the month so far on Friday, recouped a ¼ point or so on Monday. The bonds of Venezuela’s state-owned oil company Petroleos de Venezuela SA bonds were also better.

PDVSA 8½% notes due 2017 were indicated at 86 bid, 87 offered on Monday, compared to 85¾ bid, 86¾ offered on Friday.

The PDVSA 6% notes due 2026 were 35¼ bid, 36.35 offered, compared to 35 bid, 36 offered on Friday. And the 5½% notes due 2037 were also up 1.4 point at 34½ bid, 35½ offered. But the 12¾% bonds due 2022, which were among the bonds that Goldman Sachs purchased for 31 cents on the dollar in May, were unchanged at 54 bid, 55 offered. And Venezuela’s 6% notes due 2020 were also unchanged at 44½ bid, 45½ offered, according to a market source.

In the primary market, banks queried said there were no new issues to report on Monday, but there were deals being worked on that might be in the market as soon as Wednesday. Mexico is being eyed as a hotspot for upcoming issuance.

In Europe, the Middle East and Asia, things were equally slow as summer holidays loom in the northern hemisphere.

Just a few slated new issues were expected to come to market during the week including Moscow’s Eurochem Global Investments Ltd. and Cape Town’s Naspers Ltd.

“With the Eid [al-Fitr] celebrations having started over the weekend and, nearing the summer vacations in the northern hemisphere, we’re off to a relatively calm week,” a market source said. Eid al-Fitr marks the conclusion of the Muslim Ramadan holiday, which began in late May and coincided with a drop in new issues pouring out of the Middle East.

Meanwhile, Qatar has until the end of the week to comply with a list of demands presented by Saudi Arabia, United Arab Emirates, Bahrain and Egypt, but the likelihood of those demands being met seems small.

Among the ultimatums from the band of Middle Eastern countries, Qatar must curb relations with Iran, cut associations with extremist organizations and shut down its Al Jazeera media network.

On Sunday, U.S. Secretary of State Rex Tillerson said that Qatar had begun looking at the demands and stressed that this be a springboard for a resolution.

“There is a basis for ongoing dialogue leading to resolution,” Tillerson said in a statement.

Second half outlook

With the second quarter winding down, market players are looking ahead to the second half of 2017 and seeing markers for continued health in emerging markets fixed income markets. Economic improvements are expected to continue for many nations including Brazil, U.S. business growth is expected to remain tepid, and expectations for volatility are low.

On Monday, long-dated U.S. Treasury bond yields fell to fresh lows for the year, after U.S. durable orders fell 1.1%, suggesting to some that the Federal Reserve may not lift rates again this year.

The yield on the 30-year Treasury bond rose to 2.696%, compared to 2.715% on Friday.

The yield on the 10-year Treasury note settled at 2.135%, compared to 2.146% on Friday.

Meanwhile, the CBOE Volatility index fell below 10 again, to near 52-week lows, on Monday.

© 2015 Prospect News.
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