Morning Commentary: EM bonds inch ahead amid progress in Greece talks; Brazil moving lower

By Christine Van Dusen

Atlanta, Aug. 10 – Some emerging markets bonds managed to tick up a touch on Monday morning on the news that Greece’s debt talks were progressing, but most names remained weak as oil prices continued their downward trajectory.

“In Europe, some news reports suggest that further progress is being made by Greece and European credits toward an €86 billion rescue program,” according to a report from Barclays. “Germany’s position is still the toughest among the creditors, toward Greece. European risky assets are only marginally higher.”

Brazil was among Monday morning’s biggest underperformers, a London-based trader said.

“Investors now view a downgrade as the base-case scenario,” he said. “Can't say we have seen any noticeable flow of that cash being invested elsewhere.”

Bonds from Africa were “very weak,” he said, “with spreads approaching March wides.”

Looking to Asia, investment-grade cash bonds opened Monday’s session with a defensive tone after weaker trade data from China, another trader said.

“However, the market took it as a positive sign for further stimulus,” he said. “Investment-grade cash closed broadly unchanged.”

Oil companies from China held firm, even amid lower oil prices, and 10-year paper from Korea continued to look heavy.

“India is firm, with ongoing demand in the short-end financials,” he said.

India-based Icici Bank Ltd.’s new issue of 3 1/8% notes due in 2020 that priced at Treasuries plus 160 bps closed at 160 bps bid, 157 bps offered on Monday morning, he said.

The notes came to the market Aug. 5 via HSBC, Barclays, JPMorgan, BofA Merrill Lynch and Standard Chartered in a Regulation S deal.

It was a “lackluster session” so far, the trader said.

Turkish banks lower

Banks from Turkey also experienced weakness on Monday morning, particularly for paper with a tenor of five years or more, a trader said.

“Credit default swaps remain well-bid after a lot of selling in the Turkey sovereign belly and the long end,” he said. “The pressure has eased a little here as rates remain well-bid. I guess investors are finding it more difficult to find an attractive alternative.”

Turkey’s KOC Holding AS was trading well against the sovereign, another trader said.

Sritex deal ahead

In deal-related news, some market-watchers were keeping an eye on Indonesia’s PT Sri Rejeki Isman Tbk. (Sritex), which in July announced plans to price $420 million in bonds during the fourth quarter.

The textile manufacturer is thinking about building a power plant in Central Java to cut electricity costs by about 30%, according to a report from Schildershoven Finance BV.

Though the project is relatively small, the company is planning other acquisitions and projects, so will need the additional funding that the bonds will bring, the report said.

The option-adjusted spread for its 2019s is 800 bps, in line with most other B-rated Asian issuers, Schildershoven 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.