China devalues currency again; some of EM widens, Lat-Am narrows; Ukraine turmoil continues

By Christine Van Dusen

Atlanta, Aug. 12 – Most emerging markets assets were wider on Wednesday morning, with investment-grade cash bonds from Asia moving out as much 10 basis points, after the central bank in China devalued its currency for the second day in a row.

The currency hasn’t been lowered this much over a two-day period in more than 20 years.

“We dived lower on the open,” a trader said. “Bid requests are filling our screens, from uncertainty over what the moves in China mean.”

Meanwhile, a rally in U.S. Treasuries lured out outright sellers and things turned worse, post-London open, a London-based trader said. “The oil sector initially had good support, with Cnooc Ltd.’s 2025 holding at 180 bps. But that broke in the afternoon, and bonds closed at 185 bps bid, 182 bps offered.”

Technology bonds from China widened by about 10 bps, with five-year notes faring best, he said.

“India is 3 bps to 5 bps wider,” he said.

Profit-takers were seen for India-based Icici Bank Ltd.’s new 3 1/8% 2020s, which traded Tuesday at 158 bps after pricing at 160 bps.

“Short end still seeing good demand,” he said.

Spreads are reaching the wides of December, when there was a liquidity crunch and concerns about global growth, another trader said.

“However, over the last few hours it feels like the storm is calming over China,” he said. “People are slowly digesting that the devalue is not necessarily a bad move and China is using it as another tool to support the economy.”

Rates, he said, “are super-bid. I guess we are pricing [in that the] macro is too weak for the Fed to rock the global growth boat and raise rates next month.”

Lat-Am tightens

From Latin America, low-beta spreads moved tighter on the day as risk markets got a boost during the afternoon, a New York-based trader said.

Cash prices for bonds from Brazil moved “relentlessly higher” and credit default swaps spreads for the sovereign closed at 304 bps from 321 bps. Mexico’s moved to 134 bps from 135 bps, he said.

High-yield names from Latin America ended mostly unchanged on the day, he said, with Venezuela’s 2027s trading at 38 from 38.35 and PDVSA closing at 65 from 64.75.

Still, flows were light, he said.

Ukraine in focus

Some investors on Wednesday were taking note of Fitch Ratings’ new upgrade of State Export-Import Bank of Ukraine’s (Ukreximbank) long-term foreign-currency issuer default rating to CCC from RD and senior unsecured debt rating to CCC from C.

“With the latest upgrade, the eurobonds of Ukreximbank have a higher rating than Ukraine sovereign notes, which have yet to be restructured,” according to a report from Alexander Paraschiy of Concorde Capital. “The bank’s rating is currently on par with the highest ones among Ukrainian issuers.”

A similar upgrade is expected for JSC Oschadbank, as well as Ferrexpo plc and MHP SA.

Meanwhile, violence in the Donetsk region of Ukraine calmed a bit on Wednesday, but the situation remained tense, the report said.

“The conflict has no end in sight and continues to threaten Ukraine’s political and economic stability,” said Zenon Zewada of Concorde, in another report. “On a larger scale, neither Russia nor the West are backing down from their positions in the conflict, which ensures its continuance for many months to come.”

Lebanon could issue notes

Lebanon is looking to sell benchmark-sized and dollar-denominated notes this fall, a market source said.

The sovereign is in the process of issuing a request for proposals from potential bookrunners.

Other details were not immediately available on Wednesday.

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