Angola spreads tighten on potential IMF support; South Africa better; EM debt firmer

By Rebecca Melvin

New York, Aug. 22 – Angola’s sovereign curve benefited from word that the African nation has sought funding assistance from the International Monetary Fund, according to market sources on Wednesday.

The spread on Angola’s 9 3/8% notes due 2048 was tighter by 27 basis points on the week, with the bond price at 104 bid, 105 offered, a London-based trader said.

Angola said it asked to add a financial component to its IMF assistance program due to lower-than-expected economic growth this year.

IMF deputy managing director Tao Zhang said in a statement on Tuesday that the request followed an IMF staff mission visit to Angola Aug. 1 to Aug. 14 and that the fund will initiate program discussions with Angolan authorities as soon as feasible.

Angola is an oil exporter that has been hurt by lower oil prices and lowered oil production. Angola’s finance minister said the IMF funding, the amount of which has not been specified, will be used to help reform and diversify the country’s economy.

Elsewhere, South Africa’s sovereign curve was mostly tighter on Wednesday, although the shortest-dated notes, the South Africa’s 6 7/8% 2019 notes, were wider by 9 bps for a dollar price of 102¼ bid, 102¾ offered.

The South Africa rand strengthened notably against the dollar on Wednesday, up 1.5% against the dollar, which weakened against most currencies following the release of the United States’ Federal Open Market Committee Meeting minutes from its meeting July 31 to Aug. 1. But the dollar remained up 0.3% against the Brazilian real.

The FOMC minutes showed that another rate hike is pretty much baked into the September meeting, which was widely expected. The minutes showed that the policy makers viewed recent data as indicating that the outlook for the economy was evolving about as they had expected, garnering further gradual increases in the target range for the federal funds rates, which currently stands at 1.75% to 2%.

But the minutes also reflected growing concern about trade disputes between the United States and its major trading partners and proposed trade measures, which the committee viewed as a source of uncertainty and risk going forward. According to the minutes, the policy makers believe the trade disputes could hurt business sentiment, investment spending and employment. In addition, wide-ranging tariff increases could reduce the purchasing power of U.S. households.

Gathering clouds in the U.S. growth story could serve to benefit emerging markets debt market, which has seen a reversal of flows this year out of emerging markets, given the less rosy picture of global growth in the face of strong U.S. growth.

The U.S. central bank officials discussed at the meeting a scenario in which U.S. rates could have to be tightened back to 0% in the next recession.

Primary market activity on Wednesday was limited to Asia issuers. Although, Argentina’s MercadoLibre Inc. priced $800 million of 10-year convertible notes at the cheap end of talk. Some of the proceeds will be used to repurchase, exchange or retire the $263.7 million principal amount of its 2.25% convertible notes due 2019. MercadoLibre is a Buenos Aires-based e-commerce and payment company.

Shenzhen, China-based real estate development company Logan Property Holdings Co. Ltd. priced $300 million of 7½% three-year senior notes on Tuesday; the Philippines’ Asian Development Bank sold AMD 2.66 billion of 7.2392% five-year offshore Armenian dram-linked bonds, with the bonds denominated in Armenian dram but settled in dollars; and the Bank of Thailand auctioned 15.4 billion baht of 3.775% debt securities due June 25, 2032 on Wednesday.

© 2015 Prospect News.
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