Sharjah prices on difficult day; Mexico trades strongly; Treasury rally gives late boost to EM

By Christine Van Dusen

Atlanta, Jan. 20 – The Emirate of Sharjah sold notes on a challenging Wednesday for emerging markets assets, which saw the previous day’s bounce erode before recovering slightly with a rally in U.S. Treasuries.

Oil prices were, again, largely to blame for the difficult session.

“Liquidity is tightening and the stock market is melting down,” according to a report from Commerzbank.

Investors showed some interest in bonds from Turkish banks and corporates, a trader said, as well as some Middle Eastern banks.

Meanwhile, bonds from Mexico managed to trade “super-well, given how the rest of the market and United States credit are opening,” a New York-based trader said. “Wider, yes, but barely changed in price.”

Flows were mixed, he said.

“But I do not know where the bids are coming from,” he said. “Mexico seems to be defying gravity here.”

Petroleos Mexicanos SAB de CV’s bonds traded lower and saw only sellers on Wednesday, he said.

Notes from Peru moved “lower and wider,” another trader said. “But cash prices are getting a bit of a cushion from the U.S. Treasury rally.”

Late in the day, sovereign credit from Latin America was wider, but off the wides and lows of the session, another trader said.

Brazil’s five-year credit default swaps spreads ended the day at 506 basis points from 504 bps after trading as wide as 515 bps. Mexico’s closed at 213 bps from 210 bps after trading at 226 bps, he said.

“Cash prices are only slightly lower on the day as a U.S. Treasury rally helps to cushion spread-widening,” he said.

Lat-Am in focus

High-yield names from Latin America weakened, with Venezuela sagging on oil prices, a trader said.

The sovereign’s 2027s traded at 33 from 34.30 while PDVSA’s 2017s closed Wednesday at 40 from 42.60.

“Flows continue to see better sellers of EM paper, with the selling rarely subsiding, even when we do get a bounce,” he said. “The trend seems to be selling into rallies, and dip buyers are becoming increasingly scarce.”

Colombia’s notes widened as much as 20 bps on Wednesday before finishing the session about 5 bps to 10 bps wider, another trader said.

Buyers could emerge

Given that Tuesday’s bounce was related to better-than-expected but still weak economic data from China, “you have to believe that we are finally seeing some attempt to buy the dip,” a London-based trader said.

“This, I’m suspecting, has been helped by the cash positions increasing as funds get paid coupons and bond maturity proceeds,” he said.

Looking to Ukraine, some sovereign bonds have seen stronger bids so far this week, but activity has been limited as “attention stayed with global markets,” said Fyodor Bagnenko, a fixed-income trader with Dragon Capital.

Sharjah sells notes

In its new deal, Sharjah priced a $500 million issue of 3.839% notes due in 2021 at mid-swaps plus 250 bps, matching initial talk, a market source said.

HSBC was the global coordinator and Bank of Sharjah, Barclays, Commerzbank, Dubai Islamic Bank, HSBC and Sharjah Islamic Bank were the joint lead managers and bookrunners for the Regulation S deal.

© 2015 Prospect News.
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