EM debt narrowly mixed in quiet summer session; Turkish lira stabilizes after steep plunge

By Rebecca Melvin

New York, Aug. 7 – Emerging markets debt was narrowly mixed in quiet trade on Tuesday, with early improvements giving way to a neutral to lower tone as the dollar pulled back from its high mark on Monday and as U.S. Treasuries eased. However, there was very little by way of trading action among emerging markets credits and little to provide a reliable read on the space, a New York-based market source said.

“Any conclusions would be misleading at best,” the source said, adding that the broader market moves provided an indicator of any activity.

There was no further weakening of Argentina corporate bonds after widening spreads and lower prices were seen on Monday in reaction to headlines of bribery and corruption that hit on Monday, the market source said, referring to Argentina Jato, or the car wash investigation.

“We haven’t seen follow-up on that developing event. It could have been a reaction as an initial headline that came up,” the source said.

Albanesi SA’s 9 5/8% notes due 2023 notes, which have been volatile for more than a week, were trading back up around 96 this week after the bonds dropped from par to as low as 79 last week in reaction to the arrest of the power generation company’s chairman in the corruption investigation.

Albanesi chairman Armando Loson was detained along with 10 other business executives and former public employees as part of an alleged graft case.

Elsewhere, the Turkish lira remained weak but rebounded slightly after falling to record lows on Monday. The yield on Turkey’s 10-year dollar bond yield surged to 42 basis points over Treasuries, before coming back to 18 bps over.

A delegation of Turkish officials was heading for diplomatic talks in the United States on Tuesday including Deputy Foreign Minister Sedat Onal and officials from the finance, justice and foreign ministries. The meetings sparked hopes that a dispute over Turkey’s detention of American pastor Andrew Brunson may be resolved.

Meanwhile, the precipitous fall in the lira, which is now down 28% against the dollar for the year to date, has sparked speculation regarding a potential bailout of Turkey by the International Monetary Fund. The IMF stepped in to aid Argentina with a $50 billion backstop when its currency plunged to record lows in May.

Turkey has stumbled badly after the U.S. Trade Representative said on Friday that Turkey’s duty-free access to U.S. markets is being reviewed after Turkey imposed retaliatory tariffs on $1.78 billion of U.S. imports.

The retaliation came in response to U.S. sanctions against two government ministers (justice and interior) due to Brunson’s detainment since 2016 on charges that he was involved in a coup attempt that year.

Following the sanctions decision last week, the lira climbed to 4.90 to the dollar. It closed last week at 5.08 and reached 5.36 on Monday despite Turkey’s central bank lowering the foreign exchange markets reserve requirement limit to 40% from 45%. On Tuesday the rate was 5.26 lira to the dollar, but analysts expect the currency will continue to flounder especially in the absence of guidance for the markets from Turkey’s economic officials. There is speculation that if the lira sinks to 7 per U.S. dollar, the nation’s issuers will be unable to service their dollar-denominated debt.

© 2015 Prospect News.
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