Morning Commentary: Emerging markets quiet; Mexico bonds mostly retrace gains after election

By Rebecca Melvin

New York, July 2 – Emerging markets debt was quiet and weaker early Monday as the broader markets started out the third quarter weighed by trade-risk concerns. Markets will also be quieter this week with the United States’ Independence holiday shutting markets in New York on Wednesday.

“This week is going to be very quiet,” a New York-based syndicate source said, adding that it feels likely that it’s beginning of a period marked by inactivity as the summer-holiday season kicks in. “I think it will be a typical summer where there will be some opportunistic deals, but generally quiet.”

Mexico’s bonds were mostly lower after Andres Manuel Lopez Obrador, or AMLO, of the National Regeneration Movement, won handily the country’s presidential election on Sunday as widely expected.

The country’s long bonds mostly retraced gains notched on Friday. The bonds of Petroleos Mexicanos SAB de CV were also weaker. And the Mexican peso slid lower, extending weakness heading into the election. There are some pundits, however, who feel the election result was mostly priced in and the peso should consolidate.

Mexico’s 4.6% notes due 2046 fell nearly a point to slightly over 91 on Monday.

Pemex’s euro-denominated 4¾% notes due 2029 were down 0.5% at 99.85. The Pemex euro 3¾% notes due 2026 traded down at 98.115, which is slightly off the lows but still down substantially since a slide that began at the end of May. But the Pemex euro-denominated shorter-dated 3¾% notes due 2024 were up 0.2% at 101.41.

How investors will sift out regarding the victory for Mexico’s leftist candidate was not certain. There were also questions on what influence it would have, if any, on the rest of the Latin America international debt space.

Fund flows, which will have been negative recently, could also be a factor. But it wasn’t known what the impact would be, according to a New York-based market source.

“Everyone is going to be focused on what is said and what AMLO is going to do with a bunch of important state-owned companies. It will be interesting where it goes from here,” the source said.

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