Tensions put Turkey under pressure; arrests send Brazil bonds wider; Macedonia sells bonds

By Christine Van Dusen

Atlanta, Nov. 25 – Turkey was in focus on Wednesday after the sovereign shot down a Russian warplane, a sign of escalating tensions between the two countries and in the Middle East.

“We open up unchanged after yesterday’s widening as geopolitics reared their head again,” a trader said on Wednesday. “We saw some panic-selling in the Street and from retail, but we closed off the wides as the Street turned and bought risk and real-money came in to buy bonds on the weakness.”

Said an analyst, “We will watch the steps the Russian government may take against Turkey. Expect Turkey’s bonds will remain under pressure in coming days.”

Wednesday’s session also benefitted from the bounce in oil, which kept “risk from falling off a cliff,” another trader said.

But overall, activity was limited ahead of Thursday’s Thanksgiving holiday in the United States.

Looking to Latin America, bonds from Brazil widened on the news that police arrested two political leaders amid allegations they had obstructed a corruption investigation related to Petroleo Brasileiro SA, a trader said.

“We are opening to a much weaker real due to two high-profile arrests last night,” he said. “Brazilian spreads are clearly going to be wider today.”

Indeed, Brazil’s 20-year bonds moved at least 20 basis points wider on Wednesday, another trader said.

“But the rest of the market should trade well in this shortened day,” he said. “We saw overnight demand for long-dated Mexico and (Petroleos Mexicanos SAB de CV) paper, and I have heard of flows in the long end of Colombia too.”

Macedonia sells notes

In primary-market news, Macedonia priced a €270 million issue of 4 7/8% notes due in 2020 at 98.921 to yield 5 1/8%, a market source said.

Citigroup was the bookrunner for the Rule 144A and Regulation S deal.

Demand for the deal was more than €575 million, the source said.

On Wednesday, the notes were seen trading at 99.75.

Investors from the United States picked up about 39% of the orders; the United Kingdom 29%; Scandinavia 10%; Central and emerging Europe 7%; Austria and Germany 6%,; Belgium, Luxembourg and Switzerland 6%; Italy and Spain 2%; and the rest of world 1%.

Asset managers took 81%, banks 6%, hedge fund 5%, private banks 3% and insurance, pension funds and central banks 5%.

Pakistan plans issuance

And Pakistan could issue up to $1 billion of Islamic bonds, a market source said.

Other details were not immediately available on Wednesday.

“The Pakistan curve is almost 20 bps wider on the news,” a trader said.

The proceeds could be used to fund a power plant project, another source said.

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