Oil prices impact investor attitude, EM spreads; Lat-Am bonds improve; Saudi Arabia eyes deal

By Christine Van Dusen

Atlanta, May 20 – Emerging markets assets on Friday finished the week with a better tone as broader markets firmed up a bit and oil prices first climbed, then retreated somewhat on news that a Libyan port had resumed exports and that the rig count in the United States had not declined.

“U.S. Treasuries are stable after the repricing,” a London-based trader said. “Oil is back up to six-month highs, and equities are in the green. Given the supply in EM tabled for next week I do not expect investors to be looking to add today, but some may use this as a good window for some last-in-first-out balancing, given the run we have had.”

Latin American credit attempted to move higher on Friday morning amid lighter flows and volumes, a New York-based trader said.

“Credits that were pushed down the most after yesterday’s bloodletting seem to be responding,” he said, pointing to names like Ecopetrol SA and Cemex SAB de CV.

“One notable exception is [Brazil-based Vale SA], which was beat down pretty good yesterday and is doing a little better,” he said. “But it’s mostly just the shorter bonds – the 2019 and 2020 – that have generally held in well, even when Vale gets sloppy and swoons lower. And both trade squeezed most of the time as well.”

Banks from Colombia, which moved lower on Thursday, could not rise on Friday morning, he said.

“It looks like technicals, and Street supply, are holding them back a bit here,” he said. “Mexican high-grade and banks are very quiet but started to move higher into yesterday’s close when the overall market started to feel better.”

Lat-Am in focus

At the close on Friday, most Latin American credit was able to bounce, “with spreads tightening and cash prices moving higher,” another New York-based trader said. “Early morning open saw the firmest levels of the day, and we did drift a bit lower and wider, which largely coincided with equities paring gains and oil dropping.”

Five-year credit default swaps from Brazil finished the week at 350 basis points from 356 bps on Thursday, while Mexico’s moved to 176 bps from 178 bps, he said.

“Cash prices build on some of the positive momentum seen late in the day yesterday as most bonds were beaten up post-Fed minutes on Wednesday,” he said. “Latin American high yield finishes firmer on the day, with both Venezuela and Argentina higher.”

Venezuela’s 2027s closed at 42.50 from 42, while PDVSA’s 2017s finished at 66.15 from 64. Argentina’s Bonar 2024s moved to 109.50 from 109.30 and the 2026s closed at 103.25 from 102.375.

“Flows very light, as it seems summer Fridays are starting to take hold,” he said.

Middle Eastern bonds bounce

Middle Eastern bonds bounced off the previous day’s lows in light of the better tone, but inquiry was light, as is typical on a Friday, a London-based trader said.

“Turkey cash is around 2 bps to 3 bps tighter,” he said. “Credit default swaps are 3 bps to 4 bps tighter but lagging Russia, which is 7 bps to 8 bps tighter as oil rebounds.”

South Africa, Kazakhstan firm

Looking to South Africa and Kazakhstan, most bonds were firmer, the trader said.

“Real money seem like better sellers, but flows are relatively low,” he said. “I think most are reassessing, and we will see the fallout flow next week,” he said. “Let’s hope we are still bullish, because there is plenty of supply on the tapes.”

Kallpa trades up

The new issue of notes from Peru’s Kallpa Generacion SA – $350 million 4 7/8% notes due May 24, 2026 that priced Thursday at 99.258 to yield 4.97%, or Treasuries plus 312.5 bps – traded Friday morning at 99.90 bid, 100¼ offered, a trader said.

The notes were talked at a spread in the low-to-mid-300-bps area.

Credit Suisse, Credicorp, Morgan Stanley and Scotiabank were the bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used to repay existing indebtedness and for general corporate purposes.

By mid-day in New York, the notes were spotted at 99¾ bid, 100.10 offered.

“Very quiet so far – no trades or Street volume,” another trader said. “Bonds are better with the better market opening, in general, and the deal was well-placed.”

Saudi Arabia seeks banks

Saudi Arabia has sent out requests for proposals to banks that could serve as bookrunners for an issue of dollar-denominated bonds, a market source said.

The sovereign could bring a new deal to the market as soon as September.

Other details were not immediately available on Friday.

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