EM firms on oil rally but ends mostly mixed; Peru election on market’s mind; Brazil CDS narrow

By Christine Van Dusen

Atlanta, April 8 – Emerging markets were firm on Friday morning as oil rallied, bolstering sentiment for emerging markets assets, but lost some steam as equities reversed gains.

“Ahead of the IMF and World Bank spring meetings next week, the state of the global economy will inevitably shift into focus,” a London-based strategist said. “Recent comments by [the International Monetary Fund’s] Lagarde indicate that the institution is going to lower the outlook on global economic growth ‘by a little bit’ which, however, shouldn’t pose a surprise to many.”

Also coming up is the OPEC and non-OPEC meeting in Doha, scheduled for April 17, he said.

“It can be expected with near certainty that Iran is not willing to keep output at current levels,” he said. “The crux of the matter is therefore whether the other producers are able to compromise nonetheless.”

Against this backdrop, the new issue of notes from South Africa – $1.25 billion 4 7/8% notes due 2026 that priced at 98.631 to yield 5.051%, or Treasuries plus 335 basis points – saw some activity in trading.

Early in the session on Friday, the notes were seen at 98 7/8 bid, 99 1/8 offered, a trader said.

Citigroup Global Markets, Rand Merchant Bank and the Standard Bank of South Africa were the lead managers for the Securities and Exchange Commission-registered deal. The co-lead manager was Investec.

“The announced offering comes just one day after the downward revision on economic growth by Standard & Poor’s, where a downgrade to junk is looming,” the strategist said. “A downgrade either in June or December seems to remain a substantial threat. In the short-term, we expect political noises to remain a significant driver for the rand and South African credit.”

Some Lat-Am tightens

Looking to Latin America, most credit finished unchanged to slightly tighter on Friday after opening very well-bid but fading as the day went on, a New York-based trader said.

Brazil’s five-year credit default swaps spreads closed at 386 bps from 401 bps, while Mexico’s moved to 176 bps from 179 bps.

“Cash prices initially popped, but bids started to get hit and offers came, which largely coincided with equities reversing daily gains,” he said.

High-yield names mixed

High-yield names from the region were mixed, with Argentina’s Bonar 2024s unchanged at 108.25 and Venezuela’s 2027s at 37.75 from 37.50 on oil strength.

PDVSA’s 2017s ended the session 53 from 51.25.

“Flows on the quieter side today, with better buyers early on but sellers emerging later in the day,” he said.

Peru in focus

Investors were keeping an eye on Peru on Friday, ahead of the sovereign’s election this weekend.

“Despite the onslaught of news and polls that continue to surface ... market movement for external debt and CDS has been largely subdued,” a trader said. “Peru continues to trade alongside peers, such as Mexico, and has not really shown much idiosyncratic price movements to suggest nervousness surrounding the election.”

Volumes, which picked up late last week and earlier this week, suggested that investors were squaring their positions, a move that “may indicate that market participants have already adjusted risk accordingly,” he said. “It seems risk and reward may be currently skewed for a downside movement in cash prices and spread widening in CDS.”

© 2015 Prospect News.
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