EM debt starts new week on a quiet note; new North America trade agreement eyed; Mexico, Pemex edge up

By Rebecca Melvin

New York, Oct. 1 – Emerging-markets debt was quiet to slightly stronger to begin a new week and the fourth quarter on Monday, with several planned new issues wrapping up roadshows for pricing possibly on Tuesday.

It’s a “lackluster Monday really,” a London-based trader said.

Among deals on the calendar scheduled to conclude fixed-income investor meetings on Monday with pricing seen possibly Tuesday were Albania, with a U.S. dollar-denominated benchmark offering of intermediate tenor notes, Saudi Basic Industries Corp., or Sabic, which was planning dollar five- and/or 10-year notes, and Gulf International Bank BSC, which was marketing five-year dollar notes.

There was news for market players to digest on Monday, including that Canada has joined Mexico and the United States for a revamped North American Free Trade Agreement. The new agreement, called the United States-Mexico-Canada Agreement, or USMCA, gives U.S. farmers greater access to the Canadian dairy market but keeps a Nafta dispute-resolution process and protects Canada from any U.S. tariffs imposed on cars, trucks and auto parts imported into the United States.

“I think that the news is credit positive for Mexico and Mexican issuers, but I don’t think we’ll see the market rallying massively from here just on the back of the trade agreement,” a New York-based market source said.

Also on Monday, Indonesia was in focus after the Asian country suffered a 7.4-magnitude earthquake and tsunami on Friday that has affected up to 1.6 million people, according to the Associated Press.

More than 832 people have died, with the death toll expected to rise. Indonesia has been one of Asia’s biggest debt risks. It was among the so-called fragile five, along with India, Brazil, Turkey and South Africa, when the taper tantrum hit five years ago in 2013, triggered by U.S. policy tightening. It has a high level of foreign-denominated debt and does not have trade surpluses and the current-account deficit has widened. Indonesia’s rupiah is down nearly 9% this year. It had hit a recent low on Sept. 25.

China’s markets were closed on Monday for a national holiday.

Overall it was quiet in the Latin America debt space, with light flows in secondary trading, a market source said at late morning on Monday.

On the back of the new USMCA trade agreement Mexico’s sovereign bonds and those of Petroleos Mexicanos SAB de CV were up about 0.5 point, and tighter by about two basis points, but in line with the broader low-beta credit space, a market source said.

“I think this clears one of the concerns that the market had and [market players] will just continue to monitor closely regarding the next hurdle,” the market source said regarding the trade agreement.

In a joint statement, the U.S. Trade representative Robert Lighthizer and Canadian Foreign Affairs Minister Crystia Freeland said the agreement will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home.”

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