Ugly session for Latin America; liquidity poor throughout EM; Rosneft could print notes

By Christine Van Dusen

Atlanta, Dec. 10 – Latin American corporate bonds were weak and illiquid and sellers outpaced buyers on one of the “ugliest” days for notes from the region, a New York-based trader said.

Assets from other emerging markets also faced challenges on Wednesday, a London-based analyst said.

“It definitely feels like the market is moving into Christmas holiday mode, with limited trading this morning, and relatively flat spreads,” a London-based analyst said. “Clearly lots of concerns in Europe about a possible snap election in Greece.”

Most sovereign bonds opened relatively flat with poor liquidity, he said.

“We will now await the presidential votes in Athens,” he said, pointing out that the frontrunner would likely want to renegotiate Greece’s bailout package. “[Emerging markets] was highly impacted by the European crisis back in 2011. There will be concerns by investors about a repeat if the Greece situation deteriorates.”

Bonds from Russia remained weak on Wednesday as the market awaited talks with Ukraine and hoped for a more lasting ceasefire. There was only “sporadic firing” on Tuesday, he said.

In other news from Russia, mining company Mechel has agreed to a debt restructuring plan with Gazprombank and is continuing to talk with other banks.

And Russia’s AFK Sistema transferred its ownership stake in OAO Bashneft to the sovereign’s Federal Property Management Agency. Prosecutors have said Bashneft should not have been privatized and that all the subsequent share transactions were illegal. Sistema’s chairman was put under house arrest in September for allegedly laundering money.

“Liquidity is still largely non-existent in the complex, but spreads are generally unchanged this morning,” the analyst said.

Rosneft considers issuance

Also from Russia, Moscow’s OAO Rosneft is considering an issue of RUB 800 billion of bonds, a market source said.

The notes will likely be issued in several six-year tranches.

Lat-Am in focus

Taking a closer look at Latin America, credits from Chile were weaker and wider but moved down only slightly on Wednesday, the New York trader said.

Bonds from Peru were mostly quiet, and those that did trade, traded well. But liquidity remained a challenge, he said.

Bonds from Mexico, particularly its high-grade names, were under pressure, he said.

And Ecopetrol bonds dipped as a result of oil prices, he said.

Petrobras widens

Bonds from Brazil-based Petroleo Brasileiro SA opened with some weakness and were mostly unchanged. But later in the session the notes moved out 30 basis points, the New York trader said.

Oil prices were to blame, as well as increased selling, he said.

Brazil-based Vale SA widened too, but only minimally, amid subdued volumes.

Turkey CDS widens

Bonds from Turkey were mostly unchanged on Wednesday while credit default swaps spreads widened on third-quarter gross domestic product numbers that missed estimates.

In other trading, high-grade bonds from Asia were between 1 bp and 3 bps wider on Wednesday, a London-based trader said.

“In the China space, the tone remained soft after the sell-off in equities yesterday,” he said. “The China oil complex was 2 bps to 4 bps wider as oil prices slid further.”

India, Korea same to wider

From India, notes were unchanged to 5 bps wider as offshore sellers focused on 10-year bonds, the London trader said.

“The Korea short end was unchanged to a couple wider, despite having onshore buyers,” he said.

Property companies from China were unchanged to 1/8 point lower, he said, while high-yield sovereigns from Asia were between 1 bp and 3 bps wider.

“Indonesia’s 2044s traded in a quarter-point range, last down at 125¼%,” he said.

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