Greeks oppose bailout terms; risk-off mood persists; Lat-Am mixed, Asian bonds mostly wider

By Christine Van Dusen

Atlanta, July 6 – Trading of emerging markets bonds was limited on Monday – with Latin America names mixed and Asian bonds mostly widening – after Greek voters overwhelming opposed lenders’ conditions for another bailout and the Greek finance minister resigned.

“It’s risk-off in Asian credits after Greece voted ‘no’ to austerity,” a London-based trader said. “Investment grade cash started the day 3 basis points to 5 bps wider with little selling. The overall tone was defensive but orderly.”

Among sovereign bonds from Asia, Indonesia and Pakistan were the most active, he said.

“But the overall tone was still relatively weak, given the bonds cheapened against the Treasury strength,” he said.

Bonds from Central and emerging Europe, the Middle East and Africa were wider but “fairly muted and lackluster” during the session, another London trader said.

The sovereign curve for Turkey was 6 bps to 8 bps wider while the belly of the curve for South Africa moved 10 bps to 15 bps wider, he said.

“Ghana was marked lower, and the best part of 20 bps to 25 bps wider on the day,” he said.

From Latin America, low-beta spreads ended the day wider, with five-year credit default swaps spreads from Brazil closing at 261 bps versus 254 bps and Mexico at 131 bps from 128.50 bps, a New York-based trader said.

Cash prices tried to keep pace with Treasuries, he said, and held up “relatively well in the face of negative headlines out of Europe.”

High-yield names from Latin America were mixed, with Argentina moving higher and Venezuela dipping, he said. Venezuela suffered mostly due to the change in oil prices.

Flows, overall, were somewhat quiet but balanced, he said.

Russia could suffer

There are concerns about trickle-down impacts from the Greece situation, particularly for Russia, according to a report from Schildershoven Finance BV.

The Greek vote has “had a substantially negative effect on oil prices,” the report said. “Such a dynamic negatively affects Russia’s national currency, which has decreased over 1.8% during the last two working days.”

If Iran begins to export its oil on the international market, “Russia will face the strongest pressure,” the report said. “So the risks of volatility for the Russian bond market continue to increase. Investors should be prepared for it.”

Middle East in focus

Looking to the Middle East, a trader was expecting to see some demand for Dubai’s Jebel Ali Free Zone (Jafza) on Monday, following the company’s upgrade by Fitch Ratings to investment grade.

“Looks cheap to DP World’s 2020s, although there is a 14-point cash price differential,” he said. “Perpetuals are a bit more two-way today. Morocco sees a bit more support.”

Pacific Rubiales vote delayed

In other news, Latin America-focused Pacific Rubiales Energy Corp. received attention after the vote on the takeover bid from Mexico’s Alfa SAB de CV and Harbour Energy Ltd. was postponed from July 7 to July 28.

According to the O’Hara Administration, which represents a significant number of Pacific Rubiales’ bondholders, about 60% of shareholder votes cast by proxy opposed the deal.

“Only a few prints so far,” a New York-based trader said of Pacific Rubiales’ bonds. “Down 1½ to 2 points on delayed vote.”

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