Risk appetite, tone improve slightly post-China losses; spreads for Petrobras, Vale narrow

By Christine Van Dusen

Atlanta, Aug. 25 – Most emerging markets assets improved slightly on Monday morning – with some Asian assets stabilizing on the news that China cut its interest rates and lowered banks’ reserve requirements – as investors continued to deal with the massive losses in Chinese equities.

Central and emerging Europe, the Middle East and Africa credit traded “with a better tone, with credit default swaps and indexes tightening but little trading in the cash market,” a London-based trader said. “A mixed open, with Chinese equities in deep losses, but the rest of Asia has stabilized a bit from yesterday’s macro-risk shock, with Indonesia trading 10 basis points to 15 bps tighter.”

High-grade notes from China were under pressure, but “two-way flows emerged,” he said. “Buyers of longer Korea corporates today, and [India’s] three- to four-year financials are seeing some two-way flows, with buyers locally and sellers coming out of Europe.”

Asian sovereigns began to regain some ground, “which felt insignificant in the scheme of recent moves, but somewhat satisfying, as levels held while China collapsed,” he said.

From Turkey, sovereign bonds traded “fairly well, given overall market price action and current political risk,” another trader said.

From Latin America, bonds from Brazil-based Petroleo Brasileiro SA and Vale SA led the move tighter, with their spreads narrowing by as much as 25 bps, a New York-based trader said.

Other credits from the region were better-bid on Tuesday.

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