Codelco under pressure; U.K. holiday slows EM trading; Brazil vote ahead; Lat-Am tightens

By Christine Van Dusen

Atlanta, Aug. 29 – Chile’s Corporacion Nacional del Cobre de Chile (Codelco) came under pressure amid challenging metal prices on a Monday that saw low trading volumes of emerging markets assets as a result of the European holiday.

“Risk aversion in the market seems to be increasing, so we wouldn’t be surprised to see downside pressure,” according to a report from Schildershoven Finance BV.

In trading from Asia, dollar sovereign bonds faced negative dynamics on Monday, with 10-year notes from Malaysia down by 28 basis points and Indonesia by 32 bps, a trader said.

Looking at Codelco, the company finds itself in a “difficult situation due to the current metal price level,” according to a report from Schildershoven Finance BV. “The company’s aging mines need to be highly invested in, in an effort to stabilize production. At the same time, in current terms the company has no sufficient liquidity to finance some of its projects.”

The company expected to receive $800 million from the government soon, the report said.

“The company’s bonds yield is highly correlated with the sovereign. Currently, the spread with the sovereign bonds is at the historically low levels,” Schildershoven said. “We don’t see much value in Codelco’s bonds due to pricing. At the same time, possible negative news flow may increase investors concern over the company.”

Also from Latin America, the impeachment trial for Brazil President Dilma Rousseff was nearing an end, with a final vote expected for Tuesday or Wednesday.

“Failure to impeach Dilma Rousseff is a substantial risk for the Brazilian capital market,” the report said.

Overall, trading was slow for emerging markets assets on Monday.

“This is the second-slowest week of the year, with Christmas week as number one,” a New York-based trader said.

Lat-Am in focus

Latin American spreads tightened slightly into the close, with subdued activity during this final week of August, another New York trader said.

Brazil’s five-year credit default swaps spreads closed Monday at 257 bps from 259 bps, while Mexico’s moved to 136 bps from 139 bps.

“Cash prices do rise on light volumes as the Treasury rally and spread-tightening help to boost levels,” he said. “Lat-Am high yield also finishes better on the day, with Venezuela and Argentina higher.”

PDVSA’s 2017s closed at 75.25 from 75, Venezuela’s 2027s at 502.5 from 49.75 and Argentina’s Bonar 2024s at 117.60 from 117.30.

Argentina’s 2026s were up at 112 from 111.40.

“Flows very light for the day, with two-way inquiry,” he said.

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