Oil prices push EM wider; Turkish bonds dip on failed talks; Asia widens; Greece in focus

By Christine Van Dusen

Atlanta, Aug. 14 – Most emerging markets assets moved wider on Friday, as oil prices moved to their lowest levels in more than six years and investors adjusted to China’s three days of currency devaluation.

“Global asset price movements have been more contained today,” Hamish Pepper of Barclays Capital said in a report. “Nervousness clearly remains, however.”

Said a London-based trader, “Oil credits underperformed.”

This occurred against the backdrop of the fallout from two massive explosions earlier this week in the Chinese port of Tianjin, which claimed at least 56 lives and disrupted shipments of iron steel and iron ore.

“The port accounts for around 6% of all iron ore imports in China and around 30% of all steel exports,” according to a report from Schildershoven Finance BV. “As of now, the extent of future disruptions is still is being discussed.”

In trading on Friday, sovereign bonds from Turkey dipped on the news that the country’s efforts to forge an alliance with the pro-secular party had failed.

“It was consensus that a coalition was not going to be formed,” he said. “The uncertainty has only increased, leaving investors nervous, which led to selling in the sovereign curve.”

Corporates and banks from Turkey, however, were mostly quiet.

“If we move 5 basis points to 10 bps wider and uncertainty increases, investors will have to really assess the situation and try to hit those strong-looking bids,” he said.

Ukraine talks continue

Looking to Ukraine, debt-restructuring talks – unsuccessful on Wednesday and Thursday – remained tense as they continued into Friday. The sovereign has a $60 million coupon due on Aug. 23 and $500 million of bonds maturing on Sept. 23.

The sovereign’s bonds moved up toward the end of the week for reasons difficult to pinpoint, said Fyodor Bagnenko, a fixed-income trader with Dragon Capital.

“Hard to say what drove the bids higher, possibly the length of the talks was interpreted as a positive sign,” he said. “Quasi-sovereigns closed unchanged.”

Asian bonds weaken

Asian credits ended the week weaker after the currency devaluations, a trader said.

“Broader [investment-grade] cash closed 1 bp to 3 bps wider,” he said. “Korea closed broadly unchanged.”

Notes from India were mixed by the end of the week, with 10-year corporates moving 2 bps to 5 bps wider and banks unchanged.

“Malaysia is under pressure, as oil continued its search for the bottom,” he said.

Malaysia’s Petroliam Nasional Bhd. (Petronas) saw its curve close 5 bps wider, he said.

Greece in focus

Market sources were also keeping an eye on Greece, where the parliament approved a Memorandum of Understanding with its European partners ahead of a confidence vote on Aug. 20.

“Domestic political dynamics in Greece are likely to remain a concern,” according to a report from Barclays Capital. “The announcement of a new political movement by the leader of the Syriza leftist platform has raised concerns of a possible deep-rooted division of the party ahead of the Syriza party congress in September and potential snap elections, all of which are likely to keep uncertainty high for the next few months.”

Banks in Greece are likely to remain “in a tricky situation” through year end and after the completion of the recapitalization process, the report said.

“On the bright side, the European Central Bank may reintroduce the waiver on [Greek government bonds] before the end of the year, which would ease liquidity pressure on the banks,” the report said.

© 2015 Prospect News.
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