Lat-Am bonds mixed, default swaps tighter on holiday for region; CAF, Kexim advance deals

By Christine Van Dusen

Atlanta, Nov. 2 – Emerging markets bonds were mixed on Monday, even amid weakness for U.S. Treasuries, with Latin America mostly quiet on a holiday for the region.

Also on Monday, Turkey was in the news after Sunday's elections revealed that the ruling Justice and Development Party (AKP) had regained its parliamentary majority.

“Turkey is off the highs, with real-money selling into the rally, and the Street stopped chasing shorts,” a trader said on Monday.

Still, Turkey’s bonds were expected to continue outperforming similarly rated credits, such as South Africa, another trader said.

“The results will take off pressure on Turkey’s rating, with revisions scheduled for Friday and Dec. 4,” he said. “We will, however, monitor any potential headlines on the political and economic agenda that could undermine the independence of relevant institutions.”

Financial and corporate issuers could become active in the primary market in the next few weeks, he said, in this “more supportive environment and before a potential rate hike by the Fed in December or 2016.”

From Asia, trading of corporates was “very quiet” with a mixed tone and spreads up or down about 2 bps on Monday, a trader said.

Investment-grade bonds from the region were broadly unchanged on Monday morning, another trader said.

“China bank seniors held in firm,” he said. “Indian banks continue to see strong demand in the short end.”

Among high-yield Asian sovereigns, the curves for Philippines and Indonesia were unchanged, the trader said.

And the new notes that Sri Lanka printed last week – $1.5 billion 6.85% notes due 2025 that came to the market at par – moved a 1/4-point lower, with the bonds quoted at 98¾ bid, 99 offered on Monday.

Citigroup, Deutsche Bank, HSBC and Standard Chartered were the bookrunners for the Rule 144A and Regulation S deal.

Schahin trades

From Latin America, bonds from Brazil-based Grupo Schahin saw some activity on Monday morning, a trader said.

Schahin was a contractor with debt-saddled and corruption-plagued Petroleo Brasileiro SA (Petrobras), which on Monday saw its bonds strengthen.

“Schahin 2022 trades at 45 locally,” he said. “We traded scraps of this between 25 and 26 on Friday. We've only seen big buyers for the last week, so there could be a number of good pieces of news, but we have heard nothing concrete yet.”

Braskem climbs

In other Petrobras-related news, bonds from Braskem SA climbed on Monday after Friday’s announcement that Petrobras had approved a deal to provide naphtha to Braskem for about 45 days.

“They are coming close to signing a long-term naphtha deal with Petrobras, helping to stabilize and enhance their competitiveness in the industry,” a trader said. “Only seeing buyers, particularly on the 2021s.”

Colombia underperforms

Long-dated bonds from Colombia continued trading poorly on Monday morning, another trader said.

“Colombia 2044 has underperformed Brazil 2045 by well over 60 bps in the last six trading days,” he said. “There are no buyers, and there is no real reason for this. [The central bank] raised rates more than expected and the Colombian economy is sputtering.”

But Brazil's situation has been worse, he said, so “it is hard to understand why Brazil has traded so well versus Colombia recently.”

Lat-Am tightens

In the afternoon, cash prices pared early losses on very light Street and client volumes, a New York-based trader said.

“Seems the market is disregarding U.S. Treasury weakness, as spreads manage to tighten and we focus on the overall positive tone in risk markets,” he said. “With much of Latin America closed for holiday today, it is hard to read too much into this strength for the time being.”

Brazil-based Vale SA strengthened on Monday, “although daily gains have been minimal,” he said.

Chile in focus

High-grade notes from Chile were bid higher on Monday, though only marginally, another trader said.

The curve for Cencosud SA, for example, saw only buyers. The bonds struggled to “keep up with the majority of other Chile high-grade credits three weeks back,” he said.

Chile's Corporacion Nacional del Cobre de Chile (Codelco) was quiet and widened slightly after its previous run tighter, driven by a plan to cut production in the wake of copper weakness.

“Overall, the Lat-Am corporate market continues to get a strong push from the lack of new issues,” he said.

CDS narrow

Late in the day, spreads moved tighter on low volume, with Brazil's five-year credit default swaps spreads moving to 420 bps from 437 bps and Mexico's closing at 420 bps from 437 bps, a trader said.

“Cash prices pared early morning losses to finish higher from Friday's close,” he said. “The market seemed to be following the positive tone in equities throughout the session.”

High-yield names like Venezuela and PDVSA close mostly unchanged, he said.

CAF sets initial talk

In deal-related news, Venezuela's Corporacion Andina de Fomento (CAF) set initial talk at mid-swaps plus 80 bps to 85 bps for a euro-denominated offering of benchmark-sized notes due Nov. 10, 2020, a market source said.

BofA Merrill Lynch, Credit Agricole CIB, Credit Suisse and HSBC are the bookrunners for the Regulation S transaction.

The notes are expected to price on Tuesday.

CAF is a lender based in Caracas, Venezuela.

Kexim to issue two tranches

Korea Export-Import Bank (Kexim) set talk for a two-tranche offering of dollar-denominated notes due in 5½ and 10 years, a market source said.

The 5½-year notes were talked at a spread in the Treasuries plus 110 bps area.

The 10-year notes were talked at a spread in the Treasuries plus 130 bps area.

ANZ Securities, Barclays, BNP Paribas, BofA Merrill Lynch, Citigroup and Societe Generale CIB are the joint bookrunners and lead managers for the SEC-registered deal. Samsung Securities is a joint lead manager.

The proceeds will be used for general operations, including extending foreign currency loans and repayment of maturing debt.

“The new deal had no impact to the existing curve, with the 2025 holding in at 94 bps bid, 89 bps offered,” a trader said.

Lebanon prints notes

On Friday, Lebanon priced a three-tranche issue of $1.6 billion notes due in November of 2024, 2028 and 2035, according to a filing from the sovereign.

The deal included $500 million 6¼% notes due 2024 that priced at par, following talk of 6.2% to 6.35%.

The $500 million 6.65% notes due 2028 priced at par, following talk of 6.6% to 6¾%.

And $600 million 7.05% notes due 2035 priced at par.

Citigroup, Fransabank, Societe Generale de Banque au Liban and Standard Chartered Bank were the bookrunners for the Regulation S deal.

Lebanon also completed a voluntary debt exchange offer, which saw $318.34 million of its notes due in January 2016 get accepted for an equal amount of new notes, the sovereign said in its announcement.

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