Colombia under pressure; Mexico mixed; emerging markets stare down lower oil; EuroChem on tap

By Rebecca Melvin and Colin Hanner

New York, June 16 – Selling hit Colombia’s sovereign debt on Friday, particularly the 2027 notes and the 2045 notes, which priced earlier this year. The spread on the near-dated 2027 bonds increased by about 6 basis points this week, hurt either by a tumble in oil prices or because of the U.S. Federal Reserve’s interest rate increase and shifting policy, market sources said.

Colombia’s medium-term notes were coming under pressure following a steepening of the curve over the last six months. Meanwhile, the shorter-dated bonds, including the 2021 and 2023 notes, remained hard to find, a Latin America credit trader said.

Colombia’s 3 7/8% notes due 2027, of which $1 billion priced Jan. 18, were indicated at 102 bid, 102.3 offered on Friday, according to the trader.

The Colombia 5% notes due 2045, a tap of $1.5 billion that also priced Jan. 18, were seen at 103 bid, 103½ offered.

“It was either yields and the hawkish tone, or oil prices. It is hard to assess which one caused this. My guess is oil prices,” a Latin America fixed-income economist said.

Oil recouped some losses on Friday, with the price of West Texas Intermediate crude for July delivery up 22 cents, or 0.5%, to $44.68 per barrel. Still oil was down for the previous 10 days, falling from a level of about $48.00 per barrel.

In addition, the Federal Reserve lifted its benchmark rate by 25 bps, pulling the federal-funds target rate up to 1% to 1¼% on Wednesday. It was the second of three increases expected this year.

The Fed also reduced its expectations for economic growth and inflation and said that it was going to be reducing its portfolio of bonds by allowing government bonds and mortgage-based bonds to be sold to partially unwind assets amassed during accommodation.

There were some sellers of Mexico’s 3 5/8% notes due 2022 and 4.15% notes due 2027 this week, while the Mexico 2021, 2023 and 2025 notes remained well bid.

The week’s moves in Latin America were viewed as a blip, with no expectation that lower oil prices will impact those credit markets in a significant way over the medium term.

“Colombia has budgeted for a sustained drop in oil prices,” the economist said. Furthermore, the impact on oil revenues is mitigated by factors including such things as tourism, which increases with lower oil prices, the economist added.

Another market source said, “There has been no spillover on [emerging market] credit” of oil prices that have been the culprit of movement in global markets recently.”

“[New issues] varied by geography this week” in Russia, Africa and Turkey “and varied by currency” in dollars and euros, “so [there was] a broad range of CEEMA debt on the week,” the market source said.

In Russia’s credit market, another new deal launched on Friday as well as one for its close neighbor, Belarus, as the Russian central bank cut its key interest rate by 25 bps to 9% on Friday and said further monetary policy easing this year is expected amid an improved economic outlook.

The Bank of Russia board of directors noted that inflation is close to the target, inflation expectations keep declining, and economic activity is recovering, the central bank said in a statement. By the end of the year, the rate is expected to be trimmed to 8% to 8¼%.

Also on Friday, Russia’s central bank raised its economic growth forecast slightly to 1.3% to 1.8% in 2017 from 1% to 1½% growth seen earlier this year.

Moscow-based fertilizer company EuroChem Global Investments Ltd. is expected to come to market with a benchmark offering of dollar-denominated, four-year unsecured senior notes next week.

Citigroup and J.P. Morgan are joint bookrunners of the Rule 144A and Regulation S deal.

Earlier this week, Moscow-based Tinkoff Bank priced $300 million 9¼% loan participation notes, which traded up after issue, and quoted at 101¾ on Monday.

Also next week, Belarus will begin an investor roadshow for a dollar-denominated offerings of five- and 10-year notes, a market source said.

Citigroup and Raiffeisen Bank International were expected to be bookrunners for the deal.

Elsewhere, Sibanye Gold Ltd. finished up investor work on Wednesday, a market source said, and is likely to join the new issue pool early next week with a planned $1 billion of bonds.

“We’ve not seen any Middle East supply, but that’s not surprising given we’re in the middle of Ramadan now,” a market source said.

As it relates to the Middle East, conflict with Qatar has seen “no further meaningful developments,” though a $12 billion agreement by the United States to sell fighter jets to the sovereign is seen as “further strengthening the ties between the two countries,” a market source said.

© 2015 Prospect News.
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