Asian bonds soften; Pakistan rises in trading; Brazil quieter; Marfrig sale gets go-ahead

By Christine Van Dusen

Atlanta, Sept. 25 – Positive economic data overnight and remarks from the Federal Reserve chair did little to lift the credit markets on Friday, with bonds from India moving as much as 7 basis points wider and volumes for Turkey staying fairly low amid more selling.

“The speech on inflation dynamics and monetary policy was long and comprehensive, and contained numerous signs that a 2015 rate increase is still a real possibility, in the absence of the economy surprising the Fed to the downside,” according to a report from Barclays Capital.

In response, Asian bonds finished the challenging week on softer footing, with investment-grade bonds closing Friday’s early session between 2 bps and 5 bps wider.

“The tone felt much better, post-London open, as European equities and [emerging markets] rallied, but Asian credits failed to catch up,” a London-based trader said. “Malaysia’s curve is unchanged to a touch wider,” he said.

Malaysia-based Petroliam Nasional Bhd.’s 2025s (Petronas) traded down at 177 bps.

“Flight to quality still seems to be the theme today,” another trader said. “A lackluster session, with Indonesia continuing to feel heavy in the 2042s, 2043s, 2044s and 2045s.”

Philippines bonds started to see some support while China’s corporates were vulnerable, he said.

“High yield was very light, with sellers in industrial names,” he said. “This wraps up a rather rollercoaster week, as we head towards last week of September.”

In other trading on Friday, the new issue of notes from Pakistan – $500 million 8¼% notes due 2025 that priced Thursday at par – moved up in the secondary market, a trader said.

The notes were seen trading between 101 3/8 and 102 3/8, he said.

The notes had been talked at a yield in the low-8% area.

Pakistan notes tick up

Citigroup, Deutsche Bank and Standard Chartered were the bookrunners for the Rule 144A and Regulation S deal from Pakistan.

“We haven’t really seen any selling, as the bond remains well-placed and deal size is fairly small,” he said. “Still think it is cheap here, not just to the curve but outright. Activity has taken a bit of a pause.”

At the end of the day, the bonds were up two points.

“Paper was fairly scarce, with 80% buy enquiries and no loose bonds, as flippers feared to step in,” another trader said. “We still think in a stable market there is decent upside left in the trade, as it remains cheap to the curve and outright.”

Lat-Am in focus

From Latin America, sovereign spreads moved wider on Friday amid significant selling, a New York-based trader said.

Bonds from Brazil were “markedly quieter” on Friday after the previous session’s rally, another trader said.

The sovereign’s five year-credit default swaps spreads closed Friday near 495 bps after tightening to 465 bps in the morning and closing on the previous day at 476 bps.

Mexico’s credit default swaps spreads closed at 174 bps after tightening to 159 bps. On Thursday, the spreads closed at 164 bps.

“Cash prices take another leg lower and Brazil gave back most of the gains from late yesterday afternoon,” he said.

Marfrig gets sale approval

Also on Friday, regulators approved Brazil-based Marfrig Group’s sale of chicken company Moy Park to JBS, a move that is “positive news” for Marfrig, according to a report from Schildershoven Finance BV.

“This means the deal is on schedule to be closed by year-end,” the report said. “It will allow the company to considerably deleverage. In particular, there are high chances that the proceeds will be used to call [Marfrig's] 2020.”

The option adjusted spread for the 2020s is 900 bps, “which is close to average for B-rated Latin American issuers,” the report said.

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