EM starts firm, then widens on oil prices; trading slows ahead of Fed chair’s Friday speech

By Christine Van Dusen

Atlanta, Aug. 25 – Risk assets moved lower on a light-trading Wednesday as oil weakness hurt sentiment and emerging markets investors awaited Federal Reserve Chair Janet Yellen’s speech for Friday.

Still, some hopes remained that Iran and other oil-producing nations could reach an agreement to freeze production.

“Oil prices surged late yesterday on headlines that Iran was to take part in a planned OPEC meeting on the sidelines of the International Energy Forum in Algeria scheduled for late September,” a London-based analyst said.

A spokesman for the oil ministry, however, “stated that no decision had been made yet,” he said.

South Africa remained an underperformer, with its dollar and sovereign bonds opening Wednesday morning about 15 basis points to 20 bps wider.

This came amid news reports that a special investigative unit was looking into a “former rogue unit in the South African Revenue Services,” he said. “In a sign of investor complacency, South Africa’s 5 7/8% 2025s had tightened circa 100 bps, year-to-date, pre-headline, outperforming sovereign risk in the same rating bucket.”

He pointed to Indonesia’s 4 1/8% notes due in 2025, which have tightened 90 bps, and Morocco’s 4¼% notes due 2022 that have tightened 80 bps.

South Africa’s bonds closed Wednesday’s European session about 8 bps to 12 bps wider on the day and 25 bps to 35 bps wider on the week.

South Africa’s Eskom Holdings saw spreads widen too, this time by as much as 40 bps, a trader said.

In deal-related news, market-watchers were whispering about a possible issue of dollar-denominated notes from Colombia.

Ghana could revive deal

Ghana is expected to revive plans for an issue of up to $1 billion of notes, which was delayed earlier this month.

BofA Merrill Lynch, Citigroup and Standard Chartered were the bookrunners for the original Rule 144A and Regulation S deal.

The sovereign’s finance minister reportedly said that it paused the pricing of the bond only because “there were more positive economic results that must be communicated to investors,” the analyst said.

Lat-Am starts firm

Latin American bonds started out firm on Wednesday, with slightly better buying, a New York-based trader said.

“Overall volumes are quite low, which is actually helping some credits grind ever higher, as Mexican banks make a nice comeback from a few weeks back, when accounts dumped a lot of paper into the Street,” he said.

Banks from Colombia were “very quiet, but managing small gains behind the constructive Lat-Am market backdrop, and Ecopetrol is trading off recent highs seen last week,” he said. “But it still feels in very good shape. Certainly getting some help with the takeover of the Rubiales field in June, as well as the big move in crude.”

Spreads widen

At the end of the day, Latin American spreads moved wider, with Brazil’s five-year credit default swaps spreads closing at 261 bps from 256 bps and Mexico’s at 139 bps from 136 bps, another New York trader said.

Risk assets moved lower on oil weakness, another New York trader said.

“Cash prices do weaken, as Treasuries provide little support to offset spread widening,” he said. “Price action seemed to indicate position-squaring ahead of Jackson Hole on Friday.”

High yield names from the region also weakened, with Venezuela’s 2027s closing at 49.50 from 50, PDVSA’s 2017s at 75 from 76 and Argentina’s Bonar 2024s closing at 117.125 from 117.95.

Argentina’s 2026s finished the session at 111 from 111.70, he said.

“Flows very light, with some better sellers coming in later in the day,” he said. “Markets appear to be sidelined ahead of Friday.”

Turkey in focus

Looking to Turkey, the central bank on Tuesday cut its overnight lending rate by another 25 bps to 8½%, its sixth consecutive cut, the analyst said.

In response, Turkey cash bonds widened as much as 3 bps, a trader said, and banks and corporates were mostly unchanged.

“Busy session in the Street. Pretty firm,” he said.

Turkey’s 6¼% notes due 2022 were seen Wednesday at 111 3/8 bid, 111 5/8 offered.

“We do not rule out further positive reaction of the Turkish eurobonds to the central bank’s decision,” according to a report from Schildershoven Finance BV. “However, the effect is likely to be softer than the initial reaction.”

In other news from Turkey, U.S. Vice President Biden traveled to Ankara to meet with President Erdogan and Prime Minister Yildirim, the first visit by a major Western politician since the July 15 coup attempt.

“The aftermath of the key event will also dominate today’s talks,” the analyst said. “Both sides will be keen on mending the strained ties, but the call for Fethullah Gulen’s extradition will overshadow any such efforts.”

China Orient trades

The new issue from China Orient Asset Management Corp. – $650 million 2 3/8% notes due 2021 that priced Tuesday 99.248 – traded Wednesday morning at 99.389 bid, 99.304 offered, a trader said.

Bank of China International, Standard Chartered, Bank of Communications and China Construction Bank were bookrunners for the transaction.

Other details on the deal were not immediately available on Wednesday.

© 2015 Prospect News.
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