EM credit widens on ECB statement; LatAm high yield flat to weaker; Brazil to price bonds

By Paul A. Harris

Portland, Ore., July 21 – Emerging markets credit widened on the heels of a statement by European Central Bank president Mario Draghi indicating that the bank might boost stimulus later this year, a market source said.

Brazil five-year credit default swaps closed at 290 basis points bid, four points wider on the day, as news that Brazil was about to issue new long 30-year paper weighed on single name CDS, as well as the long end of the cash curve.

Mexico five-year CDS was also wider on the day at 141 bps bid, up from 139 bps bid.

After trading as high as 93.25 on the day, the emerging markets index dropped back to 93.05, ending unchanged on the session.

Latin America high yield ended flat to weaker.

Venezuela’s state-owned Petroleos de Venezuela, SA (PDVSA) notes due in 2017 finished unchanged at 76¼ bid, down from 78 bid.

Venezuela sovereign bonds due 2027 closed at 50¼ bid, down from 50.35 bid.

Argentina’s debt was largely unchanged on the session.

Volumes saw a modest pickup with good two-way flow in modest sizes, the source said.

The shorter maturities of Chile’s Empresa Nacional del Petroleo (ENAP) were trading at early tender price levels or higher, which the company announced earlier in the week, a source said.

The tender includes the 6¼% notes due in 2019, the 5¼% notes due in 2020 and the 4¾% notes due in 2021.

In a Wednesday press release, ENAP said it proposes to offer new notes in order to help fund the $600 million tender, via dealer manager Citigroup. The early expiration date is Aug. 1.

Turkey selling slows

The intensity of selling in Turkish debt slowed during the London afternoon, a source said.

The long end of the Turkish sovereign curve came under pressure following S&P’s downgrade of the debt to BB- from BB.

Turkey’s misfortunes following the failed coup attempt to displace President Erdogan have propelled investors toward other regions, a London-based trader said earlier.

Money that left Turkish debt appeared to surface in a Wednesday deal from Kazakhstan’s Tengizchevroil (TCO), the source added.

TCO priced $1 billion of 4% 10-year senior secured notes (Baa2/BBB) at Treasuries plus 250 bps.

The new TCO paper was trading at 99.62 bid, 99.82 offered on Thursday, the source said.

The spread came inside of the Treasuries plus 275 to 287.5 bps spread talk. Initial talk was 300 bps.

The issue played to orders exceeding $3 billion, the source said.

And while the Turkish sovereign was 75 bps wider on the week, Kazakhstan sovereign debt was 10 bps tighter, as was debt from South Africa, the trader said.

Brazil benchmark

In the primary market Brazil came with a benchmark issue of dollar-denominated bonds.

The long 30-year bonds, set to mature in February 2047, came with initial yield guidance of 6%.

Deutsche Bank, Goldman Sachs and HSBC are joint lead managers and joint bookrunners for the public offer.

Elsewhere the Republic of Trinidad & Tobago (Baa3/A-) mandated Deutsche Bank and First Citizens Bank to set up meetings with fixed income investors ahead of a possible dollar-denominated offering of 10-year bonds.

The international roadshow for the contemplated Rule 144A and Regulation S offer starts on Monday.

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