Risk appetite wanes after G-20 meeting; Lat-Am corporates perform; Yapi Kredi advances deal

By Christine Van Dusen

Atlanta, Feb. 29 – Risk sentiment on Monday was soggy after the G-20 meeting, which did not yield firm plans for addressing market conditions, but Brazil still managed to perform – even amid continued political turmoil in the country.

“Curve a little flatter,” a trader said of Brazil. “First day of flattening in quite a while.”

This came as President Dilma Rousseff’s chances of being impeached increased, a strategist said.

“During the past week, three different sectors of President Rousseff’s support were shaken, with the arrest of her campaign manager, strong criticism of her party toward the economic policies, and the first signs of social movements’ support distancing themselves from her,” he said. “All together, this new set of information increases the probabilities that the president will be impeached this year. An isolated, strained president becomes very susceptible to an impeachment, and the proof of pudding will be in the street protests on March 13.”

Overall, emerging markets assets opened “on the back foot,” a trader said.

Still, “we had some constructive rhetoric on countries not to pursue competitive devaluations, and Iran looks to open a new page as reformists look likely to take power,” the strategist said. “We also had the ceasefire holding in Syria over the past few days, which is a step in the right direction.”

In other news, Russia’s PAO Severstal on Sunday suspended the search for survivors from Thursday’s gas blast at its Vorkutaugol coal mine.

“A methane gas leak ... triggered three explosions that ignited fires and partially collapsed the mine, killing 36 people, including five rescuers,” according to a report from Schildershoven Finance BV.

The effect on the company’s eurobonds should be “limited,” the report said.

Lat-Am corporates move up

Latin American corporates continued to move higher throughout the session, a New York-based trader said.

“I don’t believe there are any credits that are actually lower from Friday, including some of the Brazilian corporates that were downgraded late Thursday,” he said. “Colombian banks, which had been lagging this uptrade, are now finding their way higher the last three sessions.”

Banks from Mexico moved higher, he said.

“The [timidity] seen in the early part of this uptrade has clearly subsided, although I’m not seeing an extraordinary amount of cash being put to work in the front of month end here the last week,” he said. “And remember the pipeline remains closed, so it’s either secondary buying or nothing.”

Sovereign spreads mostly widen

Sovereign spreads from Latin America closed on Monday slightly wider “as morning strength turned into afternoon weakness, which seemed to coincide with a reversal in equity markets,” a trader said.

Brazil’s five-year credit default swaps spreads finished at 460 bps from 458 bps, while Mexico’s was unchanged at 198 bps.

“Cash prices continue to be firm as a mix of month-end buying and U.S. Treasury strength have levels hitting new recent highs,” he said. “Low-beta paper did outperform some of the more volatile names today.”

High-yielders from Latin America were mixed on Monday, with Venezuela’s 2027s down to 40.15 from 41.25, PDVSA’s 2017s at 49 from 49.75 and Argentina mostly unchanged.

“Flows continue to be dominated by better buyers, and today’s volumes were characteristic of month-end, with heavy two-ways later in the day,” he said.

Azerbaijan downgraded

Investors were also keeping an eye on Azerbaijan, which saw its bonds downgraded to junk level but did not see them take a hit in the market, Schildershoven said.

“The impact will be limited, as the issues have already reacted to the same rating action by other agencies earlier this year,” the report said.

Yapi Kredi holds investor call

Turkey’s Yapi ve Kredi Bankasi AS (Yapi Kredi) held an investor call on Monday morning for a dollar-denominated issue of notes, a market source said.

The Istanbul-based lender in November held a roadshow the offering.

BofA Merrill Lynch, Citigroup, MUFG Securities and UniCredit Bank are the bookrunners for the Rule 144A and Regulation S deal.

“Owning a private bank, versus a state bank, is most investors’ preference, and the secondary curve shows this,” a trader said. “Awaiting initial price guidance, but with Vakif Bank’s 2025 trading at 7.855, it has to pay a ... premium over that in this market, despite that preference.”

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