Mexico, Bahrain sell notes; EM bonds firm up, spreads tighten; Syria-related tensions rise

By Christine Van Dusen

Atlanta, Feb. 16 – Mexico and Bahrain sold notes on a firmer Tuesday for emerging markets assets, with spreads tightening after European Central Bank chief Mario Draghi’s dovish comments helped calm investors.

Draghi said that European banks, though they have seen a big decline in stock prices, are more resilient than before the financial crisis.

Also helping the tone on Tuesday was the news that, at talks designed to deal with the oversupply of oil, several nations – Qatar, Saudi Arabia, Russia and Venezuela – agreed to freeze output.

“The market remains firm,” a London-based trader said. “The market is building in some expectations of a supply cut. Credit markets still remain attractive after rallying off the lows, and my view is in March we could see risk grind higher as central banks ease policy and hold back from tightening.”

Meanwhile, the situation in Syria worsened, with Russia and Turkey accusing each other of ramping up the conflict with military action.

“Russia said that it would raise Turkey’s recent attacks with the United Nations, claiming that Turkey is supporting terrorists and bombing civilians and infrastructure. Russia, however, was alleged of striking hospitals in northern Syria itself yesterday,” a strategist said. “Moreover, any ground operation or intensification of air strikes increases the risk of direct confrontations, and any such scenario is little priced into markets so far.”

Looking to Latin America, bonds were “trying hard” to firm up on Tuesday morning, but “it takes a lot more conviction and extended stability, globally, for it to reach Latin American credit and be anything resembling impactful,” said a New York-based trader. “But maybe we’re trying to get there, as client selling has certainly cooled but no real buyers are stepping in.”

‘Wait-and-see’ approach

Investors in Latin American debt continued to trade with a “wait and see approach,” the trader said, waiting to see “what level of stability we get in other meaningful markets away from us.”

Banks and corporates from Colombia were not firming up, he said.

“[Brazil-based Braskem SA] has also cooled its jets, and has actually ticked a little lower, with earnings due tomorrow, pre-market,” he said. “[Mexico’s Cemex SAB de CV] is still unusually quiet, with low inquiry and volumes. Even [Petroleo Brasileiro SA] is much quieter than its usual go-go self.”

Lat-Am tightens

At the end of the session, Latin American credit moved tighter and higher as “risk assets look past some oil weakness and instead focus on the move in equities,” a New York-based trader said.

Brazil’s five-year credit default swaps spreads closed at 487 basis points from 498 bps, while Mexico’s moved to 217 bps from 224 bps.

“Cash prices trade well and move higher despite a drop in U.S. Treasuries,” he said. “Colombia did see some intraday weakness, as it was hit with negative outlook, but bids did return as we headed into the close.”

Venezuela, Argentina names up

Venezuela and Argentina moved higher at the end of the day, with Venezuela’s 2027s closing at 34.25 from 32.50, PDVSA’s 2017s finishing at 41.10 from 38 and Argentina’s Bonar 2024s ending at 107.75 from 107.50.

“Good volumes for the session, with better buyers of low-beta Lat-Am paper seen consistently throughout the day,” the trader said. “We await the Asia open, to see if this rally has legs.”

Middle East sees support

From the Middle East, most bonds were “fairy well supported” and “posting decent spread gains over the week and month,” a London-based trader said.

Saudi Electricity Co. was particularly popular on Tuesday, especially the 2043s and 2044s, which are as much as 70 bps to 75 bps tighter on the month.

Belarus sanctions lifted

Some investors were eyeing Belarus after sanctions against government officials were revoked, a move that “may have a positive effect on the sovereign eurobond,” according to a report from Schildershoven Finance BV.

“It increases the chance of receiving support from the IMF or European financial institutes,” the report said. “Asset freeze and travel bans against 170 officials, including President Alexander Lukashenko, were revoked by the European Union ministers on Monday.”

This was a reward for the freeing of political prisoners and for playing a role in mediating the ceasefire in Ukraine.

“The Belarus government expects the IMF will make a decision on the $3 billion 10-year loan by the end of March,” the report said.

Mexico sells notes

In its new deal, Mexico priced a €2.5 billion issue of notes due Feb. 23, 2022 and 2031, a syndicate source said.

The €1.5 billion 1 7/8% notes due in 2022 notes priced at 99.384 to yield of 1.98%, or mid-swaps plus 180 bps, after talk in the 190-bps area. The €1 billion 3 3/8% notes due in 2031 priced at 99.433 to yield 3.42%, or mid-swaps plus 245 bps, following talk in the 255-bps area.

Barclays, BNP Paribas, Credit Suisse and UBS were the bookrunners for the Securities and Exchange Commission-registered deal.

The proceeds will be used for general governmental purposes.

Bahrain prices bonds

Also on Tuesday, Bahrain priced $750 million of taps of its notes due Jan. 26, of 2021 and 2026, a syndicate source said.

The $450 million tap of the 5 7/8% notes due in 2021 priced at 100.737 to yield 5.7%. Talk was set in the 5 7/8% area.

The $300 million 7% notes due in 2026 priced at 97.214 to yield 7.4%. The notes were talked at a yield in the 7½% area.

Bank ABC, BNP Paribas, Citigroup, HSBC and JPMorgan were the bookrunners for the Rule 144A and Regulation S deal.

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