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.

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’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.”

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.

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

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