Risk appetite, tone improve slightly post-China losses; spreads for Petrobras, Vale narrow

By Christine Van Dusen

Atlanta, Aug. 25 – Most emerging markets assets improved slightly on Monday morning – with some Asian assets stabilizing on the news that China cut its interest rates and lowered banks’ reserve requirements – as investors continued to deal with the massive losses in Chinese equities.

“Risk had edged up all morning and then, post-China’s [reserve requirements] cut announcement, spreads ripped tighter, with all reasonable offers lifted in the screens,” a trader said. “Strong price action in Russia’s banks.”

Central and emerging Europe, the Middle East and Africa credit traded “with a better tone, with credit default swaps and indexes tightening but little trading in the cash market,” a London-based trader said. “A mixed open, with Chinese equities in deep losses, but the rest of Asia has stabilized a bit from yesterday’s macro-risk shock, with Indonesia trading 10 basis points to 15 bps tighter.”

High-grade notes from China were under pressure, but “two-way flows emerged,” he said. “Buyers of longer Korea corporates today, and [India’s] three- to four-year financials are seeing some two-way flows, with buyers locally and sellers coming out of Europe.”

Asian sovereigns began to regain some ground, “which felt insignificant in the scheme of recent moves, but somewhat satisfying, as levels held while China collapsed,” he said.

Buy flows returned to the Philippines curve, another trader said.

From Turkey, sovereign bonds traded “fairly well, given overall market price action and current political risk,” another trader said.

Some buying was sighted at the European close, he said, but price action was limited as dealers stayed cautious in the low-liquidity environment.

Turkey valuations improve

Turkey’s bank and corporate paper traded closer to the bid side of the market and remained under pressure, the trader said.

“Valuations are becoming fairer, in some spots,” he said. “Subordinated debt remains cheap versus seniors.”

Oil credits, meanwhile, “haven’s caught a bid yet in any meaningful size, as the fundamentals remain weak,” another trader said.

Also on Monday, bonds from Uruguay improved during the morning, with tighter spreads and higher cash prices, a New York-based trader said.

Lat-Am tightens

From Latin America, bonds from Brazil-based Petroleo Brasileiro SA and Vale SA led the move tighter, with their spreads narrowing by as much as 25 bps, a New York-based trader said.

Other credits from the region were better-bid on Tuesday.

Mexico-based Cemex SAB de CV was “a little better, after its recent thrashing,” he said. “No customer buying to help support the bid.”

High-grade names from Mexico were slightly better-bid, he said, while banks remained at the previous day’s lower levels.

High-grade bonds from Chile were quiet but did move tighter, he said.

Political turmoil in Brazil

Looking to Brazil, Vice President Michel Temer cut back on his role as the government’s primary political coordinator in Congress but isn’t stepping down entirely, market sources said.

Temer, who sources say was tired of government squabbling, had pushed for austerity legislation amid corruption allegations and some calls for the impeachment of President Dilma Rousseff.

“The loss of Temer’s support will make it more difficult for the president to implement tightening measures in Congress,” Schildershoven Finance BV said in a report. “We expect some negative market reaction as a result of this announcement, as it potentially could result in the additional growth of political tension in the country.”

Ukraine in focus

In other news, debt negotiations continued in Ukraine and the European Union Commission took steps to resolve the sovereign’s gas dispute with Russia, market sources said.

“Both sides are considering a 20% cut to face value” in the debt deal, according to a report from Schildershoven. “Talks remain ongoing and nothing has been agreed upon.”

The International Monetary Fund says the country needs to reduce its debt burden to less than 71% of gross domestic product.

“It may be expected that negotiations will continue in the nearest future and final conditions may substantially differ from presented terms,” Schildershoven said. “We recommend to avoid investing in country’s bonds.”

Meanwhile, Ukraine has in hand the E.U. Commission’s proposed solution to the gas-related fight with Russia. The document includes “a list of steps that need to be taken to conclude a new agreement,” according to a report from Concorde Capital. “The Commission will discuss the document with Ukraine’s energy minister on Aug. 27 and then with the Russian side in early September.”

A trilateral meeting could take place late next month.

Everbright draws orders

The recent issue of notes priced by Beijing-based China Everbright Bank Co. Ltd. – $450 million 2 7/8% notes due 2018 that priced at 99.789 to yield 2.949%, or Treasuries plus 195 bps – drew a final order book of more than $1.9 billion from 87 accounts, a market source said.

About 96% of the orders came from Asia and 4% from Europe, the Middle East and Asia. Banks picked up 77%, asset and fund managers 16%, private banks 2% and insurers, sovereign wealth funds and corporates 5%.

BOC International, China Everbright Securities, Standard Chartered, Wing Lung Bank, CMB International Securities, ICBC and OCBC were the bookrunners for the Regulation S deal.

© 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.