Firmer session for EM even after Brexit debates are halted; Brazil outperforms; Ooredoo active

By Christine Van Dusen

Atlanta, June 17 – Some Latin American spreads tightened and prices rose on Friday, even after volumes fell and trading slowed on the news that the killing of a British politician halted debate and campaigning related to the United Kingdom’s possible exit from the European Union.

“Today’s session saw a total reversal of what we saw yesterday, with equities a bit soft, oil rallying and U.S. Treasuries selling off,” a trader said.

“Emerging markets credit continues to focus on the positive factors, and today it was the meaningful bounce-back in oil. The markets should continue to see position-squaring ahead of Brexit, as has been witnessed the last couple of sessions.”

The tone on Friday was relatively calm, a London-based strategist said. “Markets firmed up remarkably late yesterday and overnight, following an overall weaker session.”

Against this backdrop, spreads from Latin American bonds narrowed by a few basis points, with Brazil outperforming, a New York-based trader said.

“Cash prices are higher by 25 cents to 35 cents in the belly and 50 cents to 75 cents in the long end,” he said. “Some pressure on cash levels, as U.S. Treasuries hit intraday lows in past 20 minutes or so.”

Venezuela traded well across the curve, with its bonds up 35 cents to 50 cents, led higher by the rebound in crude oil prices.

“Flows have been on the quieter side, as is often the case on summer Fridays,” he said. “Risk assets, in general, feel positive today, as the British referendum is put on the back burner for now and there is some position-squaring ahead of the weekend.”

Lat-Am mixed

At the end of the session, Brazil’s five-year credit default swaps closed at 340 basis points, down from 351 bps previously, while Mexico’s widened to 177 bps from 176 bps.

“Latin American high yield finishes mixed on the session,” the New York trader commented.

Venezuela’s 2027s closed at 44, up slightly from 43.75, PDVSA’s 2017s finished at 44, also up from 43.75, and Argentina’s Bonar 2024s ended at 112.375, edging lower from the previous close of 112.625. The latter sovereign’s 2026s closed Friday at 106.15 from 106.5.

Banks might merge

Also on Friday, investors were watching National Bank of Abu Dhabi and First Gulf Bank PJSC, which were reportedly discussing a merger.

“As of first-quarter 2016, a combined entity would result in the largest entity in the [Gulf region],” the strategist said. “At this point, discussions are said to be at a preliminary stage.”

Qatar National bonds perform

In other news, Qatar National Bank’s acquisition of National Bank of Greece’s 99.81% stake in Turkiye Finans Katilim Bankasi AS (Finansbank) helped QNB’s bonds continue to outperform.

“We continue to see circa 10 basis points to 50 bps of tightening potential, despite the outperformance observed since announcement of the deal last year,” a trader said. “In our opinion, this will be driven by the broader investor base and the potential upgrade to investment grade at Moody’s.”

Ooredoo trades up

The new issue of notes from Qatar’s Ooredoo QSC – $500 million of 3¾% notes due 2026 that priced Wednesday at 98.964 to yield mid-swaps plus 240 bps – traded Friday morning at 99.125 bid, 99.375 offered.

That was similar to Thursday when the notes were seen at 99.125 bid, 99.25 offered.

The notes were talked at a spread of 240 bps to 245 bps.

HSBC was the global coordinator and ANZ, BofA Merrill Lynch, Citigroup, DBS Bank, HSBC, Mizuho Securities, MUFG Securities and QNB Capital were the joint lead managers and joint bookrunners for the Rule 144A and Regulation S deal.

The proceeds will be used for general corporate purposes.

Brunswick Rail downgraded

Russia’s Brunswick Rail Ltd. was downgraded to Ca from Caa3 by Moody’s Investors Service as a result of the Moscow-based railcar operator’s deteriorating cash position.

“The market remains weak” and the company is dropping its “railcar leasing rates as its dollar-denominated contracts expire,” according to a report from Schildershoven Finance BV.

The company could end up restructuring its debt, the report said.

“We recommend staying away from Brunswick Rail’s eurobond, as the restructuring risk is very high,” the report added.

Uruguay to issue notes

In deal-related news, Uruguay is expected to move forward with an issue of notes – denominated in euros, yen or dollars – this year, a market source said.

The Finance Ministry’s budget review bill was released this week and puts the sovereign’s deficit at $423 million in 2016.

Uruguay is also expected to issue local treasury notes.

Other details were not immediately available on Friday.

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