EM sovereigns weaker as Treasuries sell off; Mexichem launches deal; Saudi notes in focus

By Rebecca Melvin

New York, Sept. 27 – Selling hit emerging markets on Wednesday particularly among some of sovereign curves as U.S. Treasuries sold off, according to market sources.

Notes priced in U.S. dollars were weaker because of the move in Treasuries, but there was some spread tightening due to the fact that the dollar price was not down as much as Treasury prices, a New York-based trader said.

The U.S. long bond was down by as much as 1¾ points, pulling down prices of Latin America dollar notes by a point or so, the trader said.

The moves “were pretty much across the board,” the trader said.

In the primary space, investors eyed a $1 billion launch of notes from chemical company Mexichem SAB de CV. That paper in 10- and 30-year tranches (expected ratings: Baa3/BBB-/BBB) was expected to be released for trade on Thursday.

Meanwhile, the existing notes of the Tlalnepantla, Mexico-based company were quiet on Wednesday. Among Mexichem’s existing notes are its 4 7/8% notes due 2022, 6¾% notes due 2042 and 8¾% notes due 2019. But that paper “never traded that much,” a trader said.

Proceeds of the new Mexichem tranches are earmarked to repay indebtedness, finance prospective strategic acquisitions and other general corporate purposes.

The Middle East and Africa region was active early Wednesday as investors eyed the launch of Saudi Arabia’s $12.5 billion of five-, 10- and 30- year notes, which priced late in the day, according to a market source.

The addition of these notes will take the Saudi “secondary curve to a cool $39 billion,” another source said.

There was mixed performance in the Saudi secondary market ahead of pricing of the new notes, with the 2022 and 2027 sukuk outperforming the conventional bond curve, a trader said. Also the new 2028 notes, with pricing seen at U.S. Treasuries plus 145 basis points, makes the 2027 notes look very rich, the source said.

Elsewhere Bahrain credit was “struggling again” with the 2047 notes, which were seen down in the low 97 range. Oman’s 2047 notes were wider by about 5 bps in sympathy, and Qatar saw some late selling in its sovereign curve, although spreads there held in to make them a couple of basis points better on the day, a market source said.

Rates hit 2.31% intraday for the 10-year, which brought out some sellers in the sovereign curves. U.S. Treasuries slid after economic data showed that demand for U.S. durable goods rose faster than expected in August and after Washington’s Republicans unveiled a tax code overhaul plan that would lower the corporate tax rate to 20% from 35% presently, adding incentives for business investment, if it were to be approved.

Looking ahead, Thursday promised to be active with the new Saudi tranches for $12.5 billion released for secondary market action.

Another deal on tap for possible pricing on Thursday was Sibur’s planned new dollar-denominated issue of six-year notes. The Russian company wrapped up a roadshow on Wednesday, in tandem with a tender that expired.

Thursday will be the second to the last day of trading before the start of 2027’s fourth quarter, a trader noted.

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