Argentina sells off after early move higher; Turkey ‘solid’; Cemig prices $1 billion deal

By Rebecca Melvin

New York, Nov. 30 – Argentina’s sovereign curve performed well in the early going on Thursday before selling off in tandem with other Latin America region sovereigns when U.S. Treasuries started moving lower, sending yields higher, a New York-based market source said.

Argentina government bonds traded higher on the heels of an upgrade by Moody’s Investors Service to B2 from B3 for the local and foreign currency issuer and senior unsecured paper on Wednesday. The rating agency cited effective economic reforms and a recent return to positive growth.

The Argentina curve reacted negatively to the climb in Treasuries, which sent the yield on the 10-year benchmark up to 2.417% from 2.376% Wednesday, the highest closing level since Oct. 27.

Brazil was also trading off on the Treasury move.

Meanwhile, concerns remain about the amount of debt that Argentina has accumulated in recent months, with another new issue for the Rio Negro province on the calendar suggesting that the trend in place will continue. Rio Negro plans to price $300 million of seven-year notes under Rule 144A and Regulation S.

“The abundance of new issuance also adds pressure,” a New York-based trader said.

Venezuela and Petroleos de Venezuela SA were off slightly as trade continues with accrued interest but with volumes tailing off significantly, a market source said.

There is an impasse in the Venezuela, PDVSA space after Venezuela President Nicolas Maduro announced that he wants to restructure more than $100 billion of debt but has not yet put forward a plan to do so. Meanwhile bondholders want to believe the sovereign and its state-owned oil company will continue to pay, sources said.

Thursday’s pricing was a little lower than Wednesday’s levels but with no real trend in place.

The PDVSA 2030 notes were trading 79 bid, 80 offered on Thursday, and the Venezuela 2022 notes were 24 bid, 25 offered.

In the broader markets, there was a rally in U.S. stocks as Treasuries fell. All 11 sectors of the S&P 500 rose, with energy, technology, consumer staples and financials all higher. The promise of tax reform bill and strengthening economy buoyed these markets.

The Dow industrials gained 331.67 points, or 1.4%, surpassing 24,000 for the first time and closing at 24,272.35. The S&P 500 added 21.51 points, or 0.8%, to 2647.58, while the Nasdaq Composite rose 49.58 points, or 0.7%, to 6873.97.

Emerging markets, which have also strongly outperformed this year so far, were also better as market players closed the books on November business.

Turkey’s bonds and credit opened with a solid tone and traded well on Thursday after a volatile session on Wednesday as testimony in the closely watched Iran sanctions evasion court case brought no fresh revelations of corruption or scandal, market sources said.

The testimony of Turkish-Iranian trader Reza Zarrab has not brought out “anything crazy that could lead to sanctions against Turkish banks or anything like that,” a London-based market source said.

There were not 10 more bank names or anything that would lead to further investigations of the government at the highest levels, the source said.

Zarrab’s testimony was against Halkbank ex-deputy CEO Mehmet Hakan Atilla and seven other defendants that remain at large on a series of international corruption allegations. Zarrab was arrested in 2016 for allegedly conspiring to evade U.S. sanctions against Iran, engaging in transactions on behalf of the government of Tehran, money-laundering and bank fraud.

Zarrab confirmed that he pleaded guilty and was asking for leniency in return for his testimony. He referred to Atilla as the most knowledgeable person about sanction rules and accused him of covering up the scheme to make it look “like it’s complying with the American sanctions.”

The trial is expected to continue in New York for three or four weeks.

“The curvy is steady and bonds and credit are strong, everything is solid,” a market source said of Turkey.

The month end session was quite busy in Turkish credits and everything else. South Africa was another notable name that has been trading well this week despite a downgrade by S&P’s last week.

South Africa’s strong performance was chalked up to the fact that Moody’s did not follow suit with a downgrade and that perhaps the S&P move is disputed, a market source said.

Elsewhere, Alibaba Group Holding Ltd. added $7 billion of new notes to the market in five tranches.

The Chinese internet commerce company that has an investment-grade rating priced $700 million of 5½-year notes and four additional tranches stretching out to 2057.

In addition, Cemig Geracao e Transmissao SA, a subsidiary of Brazil’s Companhia Energetica de Minas Gerais, with lesser credit priced $1 billion of 9¼% seven-year notes on Thursday to yield 9½%.

The deal for the generation and transmission unit of the Minas Gerais State integrated power company had been talked initially for a yield in the area of 10%. The issue was brought by joint bookrunners Bradesco, Citigroup, Deutsche Bank and Itau BBA.

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