EM poised as Treasuries strengthen; Senegal plans dollar, euro notes; LatAm primary quiet

By Rebecca Melvin

New York, Feb. 26 – The emerging markets started the week off on a quieter note on Monday, with spreads wider, but tone healthy as U.S. Treasuries continued to see a bid following selling last week that lifted the yield on the U.S. 10-year Treasury benchmark to nearly 3%. The yield at late morning on Monday was down to 2.84%.

Yields rose in February amid stronger economic and inflation data, sparking jitters among government bond holders. Now investors are eyeing month-end and whether the trend in Treasury yields will persist and what the pace of interest rate increases might look like.

New Federal Reserve chairman Jerome Powell is scheduled to testify before Congress for the first time this week, appearing before the House Financial Services Committee on Tuesday and before the Senate Banking Committee on Thursday.

In the Central & Eastern Europe, Middle East and Africa region, spreads on many names including Saudi Arabia were 2 to 3 basis points wider on the day. Some names were wider by a greater amount including Lebanon’s nearer dated issues, which were wider by as much as 38 bps for its 6% notes due 2019. But Jordan’s curve was tighter, according to the data of a London-based trading source.

Jordan’s near dated 6 1/8% notes due 2026 were 103 bid, 104 offered, with spread tighter by 7.3 bps.

Meanwhile, the Republic of Senegal announced a new dual-tranche offering of euro- and dollar-denominated notes on Monday.

The African sovereign mandated BNP Paribas, Citigroup, Deutsche Bank, Natixis, Societe Generale CIB and Standard Chartered Bank to arrange roadshow meetings beginning on Wednesday. The emerging markets had a supportive tone late in the Friday session in London, a trader said.

No new issues were announced in Latin America and flows in the secondary market were light, market sources said.

“It was a quiet day,” a New York-based trader said.

One exception to the general trend was Argentina, which saw some higher pricing of the sovereign bonds by ½ point to a point. The Argentina century bond changed hands at 93.90, which was about ¾ point better on the day, a New York-based trader said.

Accounting for the strength was the fact that Treasuries were better and “people are more comfortable with these levels,” the trader said.

Petroleo Brasileiro SA’s 6.85% notes due 2115 were active, but little changed. The bond traded mostly in the 95.5 area, compared to trades on Friday of between 94 to 96. News hit on Friday that Fitch downgraded Brazil to BB- from BB because of high fiscal deficits and a growing debt burden, while failing to pass social security reforms. But buoying Petrobras on Monday was higher crude oil prices. The priced for West Texas Intermediate crude was up 0.7% on Monday at $68.97 per barrel. The price of Brent crude was up 0.4% at $67.32.

Among investment-grade paper, Mexico’s Petroleos Mexicanos 8% notes due 2019 ticked up in early action, changing hands at 106. But they were at 105.6 last, which compared to about 105.5 on Friday.

Flow in Venezuela’s bonds was light. “Not much has been trading in Venezuela,” a New York-based trader said. This corresponds with not much news in terms of new developments for the country, which is on the verge of default. The expectation is that not much will transpire until after the presidential elections for Venezuela scheduled in April.

“We will have to see what happens with the election in terms of who is going to participate. Is the opposition going to participate or is it just going to be Maduro by himself. And if that is the case, the probability of new U.S. sanctions is very high,” the trader said.

President Nicolas Maduro has been increasingly isolated due to his efforts to consolidate power and undermine the country’s constitution. Most recently Venezuela announced that it has created a cryptocurrency called the petro and due to its success, it plans to unveil another cryptocurrency. But it remains unclear who is involved in buying and selling the blockchain, which was introduced with a view to free the country from imperial pretensions.

Because Venezuela is barred from the international debt markets, the cryptocurrencies are seen as a way to raise revenue but again who the participants will be in such a market remain unclear.

“In my mind, it is not a solution. It’s more like a joke. I don’t see what purpose it serves,” a trader said.

Among Venezuela benchmark sovereign bonds on Monday, the Venezuela 2028 bonds were seen around 27.5 on Monday. The Venezuela 2022 and 2034 bonds were quoted 29 bid, 30 offered.

© 2015 Prospect News.
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