Morning Commentary: Asian bonds cannot hold on to early gains; Turkey bucks trend, gets lifted

By Christine Van Dusen

Atlanta, Aug. 26 – Asian credits on Wednesday morning got an early boost from a rate cut on Tuesday from the People’s Bank of China, but the tightening didn't last, and most names “lost some of the momentum into the close,” a London-based trader said.

“The macro picture remains dark,” he said.

But some other emerging markets assets did manage to trade well on Wednesday morning, particularly those from Turkey, where the torrent of selling seemed to have slowed.

“The risks were well-posted from the outset, leaving positioning cleaner,” he said. “Bank paper and corporates feel a bit better-offered in places, as clients are using what little liquidity there is to take some risk off. Subordinate debt remains under pressure and continues to cheapen versus the Turkey complex.”

As the morning went on, sovereign bonds from Turkey got a lift, with the belly of the curve outperforming, another trader said. The 2026 notes tightened by 4 bps and the 2045s by 2 bps.

From Ukraine, bonds so far this week have moved very little as investors have “digested the implications of a potential 20% haircut for valuations – a tall task in itself, given no information about other deal parameters,” said Fyodor Bagnenko, a fixed income trader with Dragon Capital. “Current valuation views are quite divergent.”

Quasi-sovereigns and corporates have been slightly better-bid, he said.

Taking a closer look at Asia, bonds from Indonesia and the Philippines moved lower during their afternoon session, another trader said.

Bank of China’s 2025s were initially lifted on Wednesday, after the rate cut, but lost steam, he said.

Buyers were seen for 2016 paper from Korea and India, he said.

Pemex on review

From Latin America, Mexico-based Petroleos Mexicanos SAB de CV was put on review for a downgrade from Moody’s Investors Service.

The current ratings from Standard & Poor's and Fitch Ratings are two notches higher, so the Moody’s news is unlikely to have a significant impact on spreads, a New York-based trader said.

“There is no risk of the credit getting out of the main indices,” he said. “However, the little action we have seen so far this morning has been selling of Pemex bonds.”

In other news, the continuing depreciation of the currency from Brazil is expected to hurt sentiment and widen spreads, another trader said.

It was “a very bad close last night,” he said. “This is territory not seen since 2002.”

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