EM continues to struggle; Turkey underperforms; Argentina near lows as IMF talks begin

By Rebecca Melvin

New York, May 8 – Emerging markets debt continued to struggle across the board on Tuesday with notable selling of Africa, Turkey and Argentina bonds, among others, market sources said.

The strong dollar was still the main driver of troubles for the emerging markets while President Donald Trump’s announcement that the United States is pulling out of the Iran nuclear deal, as expected, contributed to a general risk-off tone in financial markets.

Trump said that the United States will reimpose economic sanctions against Iran at the highest level, and the U.S. Treasury Department followed up Trump’s announcement saying that the sanctions will be reimposed subject to certain 90-day to 180-day wind-down periods. At the conclusion of the wind-down, the applicable sanctions will come back into full effect.

Withdrawing from the deal that had eased economic sanctions on Iran in exchange for Tehran limiting its nuclear program “may have an impact on the EM credit,” a New York-based emerging markets credit strategist said. “But it’s not going to be negative for EM, as it will drive oil prices higher.”

Since international economic sanctions on Iran were eased more than two years ago, Iran has been able to increase crude production and exports by around 1 million barrels a day, according to analysts.

Without that supply, oil prices may go higher, helping many emerging-market countries that are exporters of commodities such as oil and natural gas. Although there are exceptions like India, which is a net importer of oil. After the Trump announcement on Tuesday, the price of the West Texas intermediate crude oil front month was about $69.60 per barrel, down $1.13, or 1.6%

Meanwhile, Argentina remained a major focus for the emerging markets’ credit market as a full blown economic crisis for the country threatens. On Tuesday, market watchers turned to news that Argentina is seeking a new line of credit from the International Monetary Fund. Talks have started between Argentina and the IMF, but it is not known how long the talks will take or what form a facility might take, an emerging markets strategist said.

“It will be a credit line that they will not necessarily draw on. But it will be a precaution,” the strategist said.

Argentina’s $2.75 billion 7 1/8% notes due 2117, which have performed in line with the sovereign’s overall yield curve, were a little lower on the day but had recovered some ground since hitting a low point on Friday.

The 2117 century bond traded at 85.86 on the Berlin exchange toward the end of the European session, up from below 84 early in the session and up from 83.5 on Friday, but near their lowest price since being issued at a reoffered 90 just short of a year ago in June 2017.

The Argentine Province of Cordoba’s 7 1/8% notes due 2027 were trading around 93.25, which was down about 0.4% from 93.62 on Monday. That paper is also at its lows since pricing $450 million of the notes on the heels of the sovereign’s successful century bond in June 2017.

Before the downdraft last Thursday and Friday, the Cordoba 2027s were trading north of 96.

“The century bond has not underperformed the other 30-year notes. All [Argentina] notes are at the lows,” an emerging markets strategist said.

In addition, all emerging markets is selling off but Argentina was the weakest because it is the most exposed to the dollar and its domestic policy missteps have woven into a crisis, a market source said.

“The Argentina problem and whether they are going to get a credit line with IMF is the focus. Everything sold off including bonds and currency,” the source said.

Meanwhile, Turkey’s bonds were also underperforming, with the sovereign called 5 basis points to 10 bps wider on the day, and Turkey corporate issues called 15 bps to 20 bps wider, a London-based trader said.

The new issue market was quiet with the exception of a small deal announced by KEFI Minerals plc for a placement of $160 million of listed infrastructure bonds, there were no new announcements for Middle East & Africa region deals.

“The market doesn’t seem that receptive at the moment,” the trader said, casting doubt on speculation that a healthy pipeline of Middle East deals will try to price before the start of the month-long Muslim Ramadan holiday that begins next week.

For Africa, the Republic of Ghana is on the calendar and that will likely price after it concludes roadshow meetings on Wednesday. “They will likely be cheap and come with a good concession,” the trader said.

But otherwise “it’s all just sloppy,” the trader said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.