EM rallies as investors rotate into riskier assets; Indonesia, Philippines trade higher

By Christine Van Dusen

Atlanta, Oct. 5 – Emerging markets bonds rallied on Monday, with many seeing two-way flows but little conviction in either direction, on the expectation that a rate hike from the United States lies further down the road.

“Coming off a volatile session on Friday we opened firm with a few prints higher in the Street,” a trader said. “Rates have given back some the rally but that’s due to better risk sentiment as rate curves steepen.”

Investment-grade bonds from Asia were unchanged to a couple of basis points tighter on Monday morning, but “gains were capped with outright sellers on recent issues into the rally,” he said.

China-based Cnooc Ltd.’s 2025 bond, for one, traded Monday morning at 197 bps, tighter by 2 bps.

“We have seen good demand for duration as investors strap on risk in the sovereign space,” another trader said.

Bonds from Indonesia and Philippines moved higher on the long end, a trader said.

“Rotation into riskier assets, as flight from quality seems to be the theme the last two days,” he said.

From Turkey, banks and corporates saw two-way activity on Monday, another trader said, while sovereign bonds tightened as much as 20 bps with good demand.

“And we have seen interest build as the sovereign remains firm,” he said. “I think if we hold at current levels we could easily gap up, as the Street remains light in paper and less willing to short into such cheap valuations.”

Pakistan firms

The curve for Pakistan traded firmly on Monday, with the 2025 bonds up 20 cents to 35 cents but underperforming liquid sovereigns, another trader said.

That is “expected, as investors wait to migrate once they feel most of the value in the market has been soaked up,” he said. “I can imagine a few reasonable offer inquiries lead to a gap in prices as the Street remains light on risk.”

Cemex, Petrobras move up

Looking to Latin America, Mexico-based Cemex SAB de CV moved higher in the morning, a New York-based trader said.

“We should see a firm market again today,” he said.

Brazil-based Petroleo Brasileiro SA moved up 1 point to 1½ points and Vale SA tightened somewhat, though lagged Petrobras and the Brazil sovereign uptrade, another trader said.

Petrobras saw better buyers while Vale was quiet, he said.

Lat-Am tightens

At the end of the session, spreads were tighter and cash prices moved higher for many Latin American names, another New York trader said.

Brazil’s five-year credit default swaps spreads closed at 412 bps from 440 bps, while Mexico’s moved to 152 bps from 166 bps.

The 2017 notes from PDVSA, meanwhile, were unchanged, as were the 2027s from Venezuela.

“Today we saw good two-way flows with a lack of conviction in either direction,” he said. “This move to the upside is being characterized by gapping price action similar to what we witnessed during the selloff.”

Peru well-bid

Bonds from Peru were well-bid, with buyers seen for the 2025s and 2027s and sellers for the 2033s and 2037s, another trader said.

Uruguay’s 2024s were the best performers on that sovereign’s curve, and Panama built on its gains from Friday “with a steepening bias, as the belly of the curve outperforms,” he said.

Oman plans issuance

Oman is looking to issue rial-denominated Islamic bonds with a five-year tenor during October, a market source said.

The deal is expected to close on Oct. 22.

Other details were not immediately available on Monday.

© 2015 Prospect News.
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