Some EM rallies; light flows in Asia on holiday; Braskem weaker; Ukraine bonds perform

By Christine Van Dusen

Atlanta, Sept. 3 – Some emerging markets assets rebounded on Thursday while others saw spreads widen as China went on holiday and the European Central Bank said it would keep benchmark interest rates unchanged.

“Crude enjoyed another day of rebounding despite another weak initial jobless claim,” a London-based trader. “Despite light flow due to Hong Kong and China being closed overnight, the credit space was very well bid.”

The ECB also indicated that it was willing to bump up its stimulus programs if the deterioration in the global economic picture hurt the bank's ability to increase its inflation target.

“The big highlight remains the payrolls report tomorrow,” a trader said. “We are still waiting for a pick up for eurobond issuances in [emerging markets].”

From Latin America, spreads for corporate bonds like Brazil-based Petroleo Brasileiro SA were wider in the morning, particularly on the long end of the curve, before tightening into the close.

“Brazil high-grade has been very quiet the last few days,” a New York-based trader said, noting that Gerdau SA was among the few issuers to trade with any regularity or liquidity. “Trading quite stable, as well.”

Colombia’s Ecopetrol SA, which recently had been a very active credit, was quiet but stable on Thursday, he said.

“They’re down 4 points to 6 points the last month,” he said.

Chile-based Corporacion Nacional del Cobre de Chile (Codelco) spreads held firm in the belly of the curve, even after Standard & Poor’s revised its outlook to negative, he said.

“The Street remains short in that area,” he said. “The longer end has bounced around in a 10-basis-point range.”

And high-grade names from Chile were weaker than in previous weeks, but still “trading well,” he said.

Lat-Am spreads tighten

Later in the session, low-beta spreads for sovereigns from Latin America moved tighter, another trader said.

Brazil’s five-year credit default swaps spreads closed at 372 bps from 380 bps after trading as wide as 382 bps in the morning. Mexico’s credit default swaps finished Thursday at 147 bps from 154 bps.

“Cash prices stage a nice turnaround higher, which coincided with a rally in Latin American currency,” he said. “Brazil was a big mover on the day, as prices were getting hit into new lows early on but bounced mid-morning, and offers started being lifted across the curve.”

Venezuela, PDVSA move up

High-yield bonds from Venezuela were up 2 points to 3 points on the front end on Thursday and 1 point to 1½ points on the long end, a trader said.

“Rumors were swirling about some type of possible buy-back of bonds in the front end, which this jump can be largely attributed to,” he said.

PDVSA’s 2017s moved up to 71.50 from 68.10, while Venezuela’s 2027s finished at 41.125 from 40.50, he said.

Colombia’s banks were weaker, he said, as was the petrochemical sector, though the latter remained “in decent shape.”

Braskem suffers with contract

Meanwhile, Brazil-based Braskem SA was much weaker after the announcement of a naphtha-supply contract with Petrobras, another trader said.

“The short-term nature of the new contract maintains the uncertainties regarding a long-term agreement for naphtha supply to Braskem in the domestic market,” according to a report from Moody’s Investors Service. “Naphtha is a key feedstock for Braskem, representing about 48% of the company’s total costs.”

Ukraine strong

In other trading, bonds from Ukraine have performed strongly so far this week, said Fyodor Bagnenko, a fixed-income trader with Dragon Capital.

“Quasi-sovereigns slowly caught up as well,” he said.

Looking to Turkey, consumer price inflation came in higher than expected for August, which caused the lira to weaken against the dollar, a trader said.

© 2015 Prospect News.
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