Failed Greece talks hamstring EM trading; Indonesia struggles; Lat-Am may see price swings

By Christine Van Dusen

Atlanta, June 15 – The weekend’s abbreviated talks between the International Monetary Fund and Greece, which failed to yield any proposals related to the debt-saddled sovereign’s bailout plan, hindered trading of emerging markets assets on Monday morning.

“The market seems to be confused whether to rejoice or mourn on every piece of news out of the negotiations,” according to a report from RBC Capital Markets.

Most bonds from emerging markets were quiet and “treading water,” a London-based trader said.

“The market is treading water here until Europe gets up and going and provides some direction. Overall, it’s a weaker tone, with lingering uncertainty,” he said. “Dealers’ and customers’ appetite for risk assumption just keeps getting hammered. So overall, it’s a fairly nervous start, delivering very poor liquidity.”

Not even some strength in U.S. Treasuries could boost most bonds from Asia. Notes from Indonesia moved 1/8 point lower in the belly and ¼ point lower in the long end of the curve, another trader said.

“Looks like an opportunity to add here,” he said. “The belly is the safest play here, despite the heavy feel on Friday.”

Bonds from Philippines also struggled, with the belly of the curve declining ¼ point and the long-end moving down 1/8 point, he said.

“India also leaked, with corporates 3 basis points to 5 bps wider,” he said. “Korea was stable.”

High-grade sellers from China were hitting bids on the recent issues of 10-year notes while the sovereign space was generally 25 cents to 50 cents weaker, another trader said.

“Client flow was light, with most accounts sidelined into this Greece turmoil,” he said.

Great Wall bonds move up

Still, some demand was noted for the new issue of 2018 notes from China Great Wall Asset Management Corp., which came to the market at a spread of Treasuries plus 150 bps, a trader said.

The bonds were up at 181 bps on Monday morning.

“Away from that, the Street was mostly trying to de-risk, with bids getting hit in the Street,” he said. “Tech names underperformed, roughly 5 bps wider across.”

Agricola gets attention

In other trading, the new issue of notes due 2020 from San Salvador-based Banco Agricola SA –priced at a yield of 6¾% – received some attention on Monday, according to a report from Schildershoven Finance BV.

“Yields are higher than average for the same rating category,” the report said. “Banco Agricola’s credit quality looks strong. It is the largest bank in El Salvador, with over $4 billion of total assets, a 16.8% capital-to-risk weighted asset ratio and 1½% non-performing loans. Investors may try to earn some profit investing in the bank.”

Lat-Am in focus

Low-beta bonds from Latin America saw spreads widen during the volatile session, a new York-based trader said.

Five-year credit default swaps spreads for Brazil closed at 250 bps from 246 bps, while Mexico’s moved to 128.50 from 126.50.

High-yield names from the region were quiet and lower, he said, with low volumes.

Sellers outpaced buyers, he said.

“The markets remain fixated on Greek headlines, and this should drive volumes for the week in combination with a highly anticipated Fed this Wednesday,” he said.

© 2015 Prospect News.
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