EM debt ends session little changed; primary market quiet; Pemex churns

By Rebecca Melvin

New York, Dec. 11 – Emerging markets debt ended the session essentially unchanged on Tuesday after starting on firmer footing early in the day. A drought in new issuance persisted as market players start to count the days left in 2018 on which new deals can be priced.

“Very quiet overall...no new deals,” a London-based trader said.

A second market source said, “Markets were a bit better, but everybody is in holding mode until the new year now.”

Middle East and Africa region spreads were a bit tighter, with many credits tightening by single digits. Arab Petroleum Investments Corp.’s 2.383% notes due 2020 outperformed, tightening by 16 basis points at an indicated level of about 98.

The multilateral development bank’s most recent deal, a 4 1/8% sukuk due 2023, which priced in October, was tighter by 3.5 bps with an indicated price of 99.43 bid, 100.18 offered. Apricor is based in Saudi Arabia.

The bonds of Mexico’s state-owned oil company Petroleos Mexicanos SAB de CV continued to churn as market players anticipate President Andres Manuel Lopez Obrador’s 2019 fiscal budget, which is expected to be unveiled by Dec. 15.

Pemex’s 6.5% notes due 2029 were seen last at 93, which represents an uptrend since hitting a low of 90.6 at the end of November. But the bond has slid hard since it was issued in October at 99.954.

Lopez Obrador’s finance team has suggested the plan will be fiscally responsible, but the president ran on populist policies geared toward pensions and other programs to help Mexico’s poor. And the government is also talking about dedicating public funds to oil refinery investments – all making investors nervous.

Still the government’s back and forth with holders of the Mexico City Airport bonds over the past week is deemed as positive by some, even though the tender has hit some snags. It still indicates a government that is engaged and focused on investors, they say.

It was another tumultuous day in the broader markets with U.S. equities ending mixed after wide swings and Treasuries ending down as investors weighed signs of progress in trade talks between the United States and China.

Also in focus was a reading of U.S. producer prices, which rose for the third consecutive month in November. The PPI, which had been expected to reveal slowing inflation, was higher as increases in costs for services offset a decline for energy products.

The Labor Department said its producer price index edged up 0.1% for November, after jumping 0.6% in October. Core PPI, excluding food, energy and trade services, rose 0.3% last month following a 0.2% gain in October.

The U.S. Federal Reserve has been gradually raising interest rates to keep the economy from overheating, so higher inflation is expected to keep Fed officials on a faster track of rate raises. But soft inflation readings may cause officials to shift gears and slow the pace of higher rates.

© 2015 Prospect News.
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