Pakistan’s notes perform, other EM bonds suffer; sellers outpace buyers; sentiment weakens

By Christine Van Dusen

Atlanta, Sept. 28 – Though Pakistan’s new issue of notes outperformed in trading on Monday, bonds from Brazil, Mexico and Petroleos Mexicanos SAB de CV (Pemex) saw heavy selling and investor sentiment weakened as heath-care stocks led the larger market lower.

Buyers for many emerging markets names were difficult to find.

“Value, value everywhere, but not a buyer in sight,” a London-based trader said. “Plenty of EM risk that would without question offer a great one-year return, but the short-term volatility and threat of outflows is making it difficult to digest right now.”

Still, the new issue of notes from Pakistan performed well on Monday morning, moving up two points from reoffer, another trader said.

The sovereign recently sold 8¼% notes due 2025 at par via Citigroup, Deutsche Bank and Standard Chartered in a Rule 144A and Regulation S deal.

“Strangely, we’ve seen some demand for Pakistan’s 2024s,” he said. “Probably struggling to recover.”

In the afternoon, the new issue continued to perform well, finishing 5 basis points tighter, another trader said.

From Asia, some sectors were “surprisingly resilient” on Monday, another trader said. “Accounts are looking to trim risk, but market liquidity is extremely thin, with Hong Kong out of the office on Monday on public holiday.”

Meanwhile, Zambia’s outlook was revised to stable from negative by Moody’s Investors Service as the sovereign’s 2027 bonds traded at or near lows, another trader said.

“Moody’s is obviously not worried about default in the short-term,” he said. “No queue of buyers here.”

Turkish bank bonds quiet

Looking to Turkey, bank bonds were very quiet, another trader said.

“But the short end is trading better than further up the curve, especially the 2017s,” he said. “Will probably continue to leak until the sovereign shows some signs of stabilization, but all-in yields have become attractive for some of EM’s best run banks.”

Lat-Am widens

From Latin America, bonds from Brazil-based Petroleo Brasileiro SA and Vale SA were “up in smoke, as we approach all-time lows once again,” a New York-based trader said. “It’s difficult to gauge where other Brazil credits are currently, as inquiry and the market is very quiet.”

Bonds from Chile-based Codelco moved wider in light of generally negative sentiment in the market, he said. And Mexico, Colombia and Peru were seeing bids get pulled back markedly amid better offers.

“A very negative combo,” he said. “The market no longer has the stomach to buy bonds on a downtrade, waiting for a snap back and subsequent release. That is adding to this recent weakness.”

Sellers abound

At the end of the day, five-year credit default swaps spreads for Brazil moved out to 545 bps from 495 bps, while Mexico’s widened to 191 bps from 174 bps.

“Cash prices remain extremely difficult to navigate, with mostly offers seen onscreen throughout the session,” another trader said. “The market did not get any relief, as offer levels continued to move down as the day dragged on.”

High-yield paper from the region also weakened, with PDVSA’s 2017s moving down to 65¾ from Friday’s 67½ and Venezuela’s 2027s trading at 38¾ from 39¾.

“Today we saw an abundance of better sellers with only a few sporadic small buyers,” he said. “Street volumes light, as dealers try to decipher where levels should be, taking into account widening spreads, weak EMFX, commodities and equity markets.”

© 2015 Prospect News.
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