Quiet, wider session after economic data and ahead of U.S. holiday; issuers line up deals

By Christine Van Dusen

Atlanta, Sept. 4 – Risk appetite declined and trading of Asian bonds was slow during a shorter Friday – ahead of Labor Day weekend in the United States – as China remained on holiday and investors digested the latest non-farm payrolls data from the United States.

The United States’ unemployment rate in August was the lowest seen in seven years, according to data released on Friday. The non-farm payrolls report also revealed that the country added 173,000 jobs in during the month, the smallest increase since March.

“Weak nonfarm payroll data, mixed with positive unemployment rate and average earnings, sent Treasuries swinging violently early this morning,” a London-based trader said. “The tone, however, was generally positive towards the labor market and has investors second-guessing whether a September rate hike is still a possibility.”

After the release, Latin American credits felt weaker, a New York-based trader said.

“Cash prices were well-offered, although no prints on this illiquid holiday-shortened Friday,” he said. “Weakness in [currency] seems to be driving this weakness in EM paper, as a Fed rate hike seems more imminent after a mostly positive report.”

Cash prices dipped and low-beta spreads widened in the afternoon, giving up any tightening experienced on Thursday, another trader said. Brazil led the way wider, with five-year credit default swaps spreads closing at 380 basis points from 372 bps.

Mexico’s credit default swaps finished Friday at 150.5 bps from 147.

High-yield names from Latin America ended Friday mixed, with Venezuela moving higher and Argentina mostly unchanged, he said. And better sellers were seen for PDVSA.

In deal-related news, several issuers – including China’s Shenzhen Expressway Co. Ltd. and Bulgaria Energy Holding EAD – advanced deals.

Asian flows light

Flows for Asian bonds were light, another trader said, though sellers did emerge for India-based Icici’s 2020s.

“Chinese oil names are also a little heavy, out 2 basis points to 3 bps,” he said. “Sovereigns were unchanged over the afternoon, though Indonesia was up 1/8 point to 3/8 point.”

Petrobras, Brazil in focus

Taking another look at Latin America, Brazil’s Petroleo Brasileiro SA continued to “unravel,” a New York-based trader said, “reaching all-time wides this morning.”

Brazil-based Vale SA didn’t follow suit at first but did start to widen as the day went on, he said.

“We have seen this week a stronger decoupling, in terms of Petrobras and Brazil malaise dragging non-Brazil credits lower, and that will certainly continue if Brazil can’t right their ship to any degree deemed somewhat plausible and satisfying to the market, if the Petrobras scandal continues to rope in former cabinet members and we get some stability globally,” he said.

Deals ahead

For its possible issue of notes, China’s Shenzhen Expressway mandated BOC International as the sole global coordinator and Daiwa Capital Markets Hong Kong to arrange a roadshow, a market source said.

The roadshow for a possible issue of notes will begin on Monday.

And Sofia-based Bulgaria Energy Holding is seeking bookrunners for an issue of up to €650 million in notes, a market source said.

The proceeds will be used in the renegotiation of long-term power purchase agreements.

The invitation for bookrunners closes on Sept. 18.

Market sources were also whispering on Friday that Latvia could issue euro-denominated notes by the end of the year.

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