Greece’s woes hurt EM assets; Belarus puts off deal; Pacific Rubiales takeover vulnerable

By Christine Van Dusen

Atlanta, June 29 – Emerging markets assets declined on Monday, alongside other markets, after talks between European leaders and Greece failed.

The euro group’s proposed plan called on Greece to “reform its pension system and reduce corporate wages, among other austerity measures,” according to a report from Schildershoven Finance BV. “As a result, Greece’s prime minister scheduled a referendum for July 5.”

Withdrawals from banks intensified, leading the debt-saddled sovereign to set a bank holiday from June 28 to July 6 and limit withdrawal amounts.

Bank customers will be allowed to withdraw no more than €60 per day through ATMs and will be restricted in using “alternative channels ... payments in Greece via credit or debit cards and web banking are not subject to restrictions,” according to an announcement from the Bank of Greece.

“The Athens Exchange (Athex) shall remain closed throughout the period of the above bank holiday and, as a result, ordinary shares issued by the National Bank of Greece admitted to trading on the Athex will not trade on the Athex during the bank holiday,” the announcement said.

Against this backdrop, bonds from Asia made some large moves during the morning, a London-based trader said.

“The timeline for Greece to receive assistance draws nerve-rackingly shorter and likelihood of a resolution slims while capital controls on banks have the market looking back to Cyprus in 2013,” he said. “There is clearly going to be some very negative sentiment affecting peripheral Europe here.”

Poor liquidity in Asia

Asian high-grade spreads moved between 3 basis points and 10 bps wider on Monday morning amid “extremely poor” liquidity, a trader said.

“But we have seen a small bid return in the China investment-grade space,” he said, “as some accounts look to very selectively add risk.”

Bonds from Philippines were down 3/8 point to 5/8 point, he said, with decent turnover in the 2040s as locals bought to a high of 101½ before the notes settled at 100½ bid, 101 offered.

“Indonesia is fairly quiet,” he said. “Not the most inspiring day, as most of the Asia credits fell lower and the market moved lower. Seeing a bit more sellers on the front end of Indonesia and Philippines than usual.”

Asian corporates ‘very weak’

Corporate investment-grade names from Asia were “very weak” on Monday, widening 5 bps to 10 bps.

“Cash hoarding is the new trend, but sellers reluctant to chase bids down there,” the trader said. “The high-yield space pulled back hard, down by 75 cents to 1 point during the Asia close.”

The situation didn’t improve during U.S. hours, he said.

“Practically no buyers throughout the day,” he said.

Lat-Am in focus

Looking to Latin America, low-beta spreads moved wider as risk aversion took control, a New York-based trader said.

Five-year credit default swaps spreads for Brazil finished Monday at 269 bps from 260, while Mexico’s ended at 133.50 after touching 128 bps on Friday.

High-yield names from Latin America were mixed on Monday, with Venezuela moving lower but Argentina staging “a strong recovery from an early morning sell-off,” he said.

Pacific Rubiales struggles

In other trading from Latin America, notes from Pacific Rubiales Energy Corp. moved down 1 point to 2 points on Monday after a big drop on Friday, another trader said.

“Friday afternoon was ugly for the bonds, and this morning looks no different,” he said. “Only scraps trading so far.”

Clients were fairly quiet on Monday, he said, as the majority of shareholders seemed to think the takeover bid from Mexico-based Alfa SAB de CV and Harbour Energy Ltd. would fail.

For other bonds from the region – particularly those from Colombia, Mexico and Pemex – there was “very little going on,” a New York-based trader said.

Belarus postpones issuance

Belarus is postponing its planned issue of dollar-denominated notes until 2016, a market source said.

The sovereign was expected to issue the notes in 2015.

The International Monetary Fund is set to hold talks with Belarus in July to discuss a new loan, similar to the $3.5 billion received in 2009.

© 2015 Prospect News.
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