Asian bonds calm despite overnight tumult; Lat-Am ‘relatively stable’; Ghana sets roadshow

By Christine Van Dusen

Atlanta, Sept. 2 – Paper from emerging markets on Wednesday held on to the previous day’s tone – decent selling of long-dated paper and “multiple bids hit in the street and credit default swaps lifted” – while bonds from banks saw some demand, a London-based trader said.

“The selling has taken a pause here, but it doesn’t feel like we are going to get much participation by investors in risk to take it tighter yet,” he said. “On closer inspection, the bank curves have flattened out versus sovereigns,” he said.

Bonds from Asia were fairly calm on Wednesday, despite tumultuous market activity overnight, another trader said.

“To be fair, over the morning the sellers of risk grossly outweighed buyers, and spreads in Asia investment grade were 3 basis points to 6 bps wider in broad terms,” he said. “Oil names are unchanged on the front end, but the mid- to longer-curve is under pressure, 5 bps to 6 bps wider.”

Chinese banks saw their bonds move 3 bps to 4 bps wider, he said.

“The tone was continuing to firm into the close,” he said. “Indonesia sovereign cash never felt like it was under any real pressure.”

Bonds from the Philippines were largely unchanged, he said.

Looking to Latin American sovereigns, spreads were consolidating on Wednesday morning, moving wider but remaining “relatively stable,” a New York-based trader said.

“Low-beta cash prices do continue to trade heavy, as markets may be skeptical of this bounce in risk assets,” he said. “Trend has been to sell strength as of late, so we may be witnessing some of that this morning.”

Lat-Am continues widening

At the end of the session, Latin American low-beta spreads continued to widen as currency weakness trumped any rally in equities and commodities, another New York trader said.

Brazil remained an underperformer, with five-year credit default swaps spreads moving out to 380 bps from 368 bps.

Mexico’s credit default swaps widened to 157 bps from 154 bps, he said.

Cash prices were well offered while high-yield trading was mixed, with Argentina moving higher.

“Venezuela prices got jerked around by oil volume, which had levels up and down numerous times,” he said.

Venezuela’s 2027s closed unchanged at 40.50, while PDVSA’s 2017s moved to 68.10 from 68, he said.

Ukraine in focus

From Ukraine, trading has been strong so far this week, some retail profit-taking easily absorbed by Street buying, said Fyodor Bagnenko, a fixed-income trader from Dragon Capital.

The curve has moved ½ point higher, he said.

“Quasi-sovereigns were relatively quiet,” he said. “Corporates remained subdued.”

This occurred against the backdrop of continuing economic turmoil in Ukraine, where the Radical Party announced it would leave the coalition government, according to a report from Concorde Capital.

The move “makes sense,” the report said, but is “negative and creates rifts among pro-Western forces that the Kremlin can exploit. Indeed, this growing rift between the pro-Western moderates in the government and the pro-Western radicals and nationalists could be the very fault line the Putin regime is seeking to collapse the Ukrainian state and undermine Western support for Ukraine.”

Turkey sees tumult

From Turkey, the new interim cabinet held its first meeting on Tuesday at a time when fighting between Turkish forces and the Islamic State were intensifying, a London-based trader said.

“It was also reported that the police yesterday raided a Gulen-linked companies, grouped under the Koza Ipek conglomerate,” he said. “As the corporation also owns media companies, the raid raised concerns about the press freedom.”

In response, five-year credit default swaps spreads traded at 278 bps, following Tuesday’s 15-bps widening.

“If you want to maintain exposure in Turkey and need a return better than cash, the trade here is to long the short-dated banks, where issuance is very unlikely, and then switching in to the belly and long end of the sovereign once political risk causes an overshoot in widening and improves the risk and reward there,” another trader said.

Ghana sets roadshow

Ghana will set out on a roadshow during the third week of September for a $1.5 billion issue of notes, a market source said.

The sovereign first announced plans for the deal in March.

The proceeds will be used to refinance domestic and external debt and for general budgetary purposes.

And Nigeria’s Africa Finance Corp. set talk at Libor plus 100 bps for an issue of notes totaling up to $50 million, a market source said.

Other details were not immediately available on Wednesday.

The financial services provider is based in Lagos.

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