Morning Commentary: EM debt little changed to start light summer week; Turkey steady

By Rebecca Melvin

New York, Aug. 20 – Emerging markets debt started the week on Monday poised despite negative headlines on several fronts as hopes remain pinned on trade talks to improve and light flows are in effect amid late summer vacation schedules.

Turkey’s bonds were little moved by two ratings agency downgrades that hit on Friday from S&P Global Ratings and Moody’s Investors Service, and investors eyed Venezuela’s chaotic political and economic situation as president Nicolas Maduro moves to devalue the currency by 95%, raise the minimum wage to $30 per month from $1 per month and allows gasoline prices to float in alignment with international levels (although many Venezuelans will still be able to purchase subsidized gasoline).

Petroleos de Venezuela SA’s 8˝% bonds due 2020 were unchanged on Monday at about 86.9 bid, 88.1 offered. The bonds had improved modestly last week after dropping to 85 from 90 in reaction to the Turkish lira crisis.

Most of the rest of PDVSA and Venezuela’s sovereign curve bond prices were stagnant in the low 20s as the nation remains in default on about $6 billion of international debt.

The PDVSA 2020 bonds are higher as they are backed by shares in the company’s U.S. refining Citgo unit.

Turkey’s bonds were looking little changed although the banks were still well offered, a London-based trader said, after S&P and Moody’s downgraded the sovereign late Friday.

S&P said it lowered its long-term currency sovereign credit rating to B+ from BB- and its long-term local currency sovereign credit rating to BB- from BB, citing expectations for continued extreme volatility for the Turkish lira and projected balance of payments problems.

Moody’s downgraded Turkey’s long-term issuer ratings to Ba3 from Ba2 and changed its outlook to negative, citing expectations of continuing weakening of Turkey’s public institutions and reduced predictability in Turkish policy making.

“The ratings news is kind of ‘in the price’ already,” the trader said.

The lira stood at 6.18 lira to the U.S. dollar on Monday.

© 2015 Prospect News.
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