EM spreads narrowly mixed; Venezuela/PDVSA bonds tank on surprise call for restructuring

By Rebecca Melvin

New York, Nov. 3 – Emerging markets spreads were narrowly mixed on Friday as a calm descended following a week of tenterhooks over potentially market-moving economic and monetary policy news, including U.S. president Donald Trump’s choice for chair of the Federal Reserve.

As expected, Trump chose Jerome Powell, a current Fed board governor, to replace Fed chairman Janet Yellen when her term is up in February.

In addition, the week saw progress on Trump’s tax agenda as House Republicans announced a bill that proposes to cut the corporate tax rate to 20%.

The relative calm in markets was interrupted by frenzied trading in Venezuela and Petroleos de Venezuela SA bonds after Venezuelan president Nicolas Maduro announced he wants to restructure the country’s international debt at a televised event in Caracas late Thursday.

The Venezuela and PDVSA bonds reacted “swiftly.”

The PDVSA 8½ notes were 95 on Wednesday. On Friday, the bonds were immediately trading flat, or without accrued interest, and the front end of the sovereign curve, including bonds due 2020, 2021 and 2022, had dropped 20 to 30 points, one market source said. A second source said the whole curve was down 4 to 25 points, with the front end underperforming.

The market was volatile with some bid-ask spreads as wide apart as 10 points, but there was some recovery in some bonds by late morning.

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