Emerging markets see volatile session; Lat-Am mostly widens; Aramco, Israel in spotlight

By Christine Van Dusen

Atlanta, Jan. 8 – Risk sentiment in emerging markets debt improved and flows picked up on Friday morning after oil came off its lows and China removed a circuit breaker on stock trading – which was designed to limit sell-offs.

But later in the session a “surprisingly strong” payrolls report from the United States seemed to be a cue to sell, a London-based trader said.

“What seems evident was that the volume of selling was relatively low versus December and August sell-offs, so positioning by real money seems relatively light, although the Middle East was an exception,” another said.

Bonds from Turkey held in “fairly well, with good amounts trading in the Street” on Thursday morning, another trader said. “The volumes have up-ticked in credit default swaps as Street, macro and local-rates traders look to hedge positions. So the relief rally, if we have a viable one, could see a quick squeeze tighter there.”

During the European afternoon, trading of Turkish risk was “terrible,” another trader said. “Bonds hit in the Street, leading to a whippy session, to say the least.”

A few real-money investors did look to buy, but not enough to build a bounce, he said.

“It will be an interesting week ahead, for sure,” he said.

From Latin America, spreads widened and cash prices dropped into the end of Friday, with Brazil's five-year credit default swaps spreads moving to 494 bps from 486 bps.

Mexico's CDS ended at 186 bps from 183 bps, another trader said.

“Cash bonds were well-offered throughout the session, with an increasing number of sellers emerging late in the day,” he said. “Latin American high-yield is again surprisingly firm, which may have more to do with an absence of liquidity than fundamentals.”

Venezuela names mixed

Venezuela's 2027s finished the day at 39.25 from 39 while PDVSA's 2017s ended at 50 from 50.25, the trader said.

“Flows dominated by sellers today, with lighter volumes than expected for a volatile NFP session,” he said. “This week has seen mounting negative sentiment to say the least, but you can never discount the possibility that China could intervene in some way, shape, or form over the weekend and throw markets a life preserver.”

Saudi Arabia in focus

Friday also had investors watching Saudi Arabia, which stayed under pressure as a result of lower oil prices and remained tensely at odds with Iran after the recent execution of a prominent Shiite cleric and the burning of the Saudi embassy in Tehran.

In particular the market’s eye was on Saudi Aramco, the state-owned oil company, which could take the “unprecedented” step of holding an initial public offering, the trader said.

“A decision on the future of Saudi Arabia’s oil producer will be taken in the next few months and could see the listing of some of Aramco’s subsidiaries or the whole parent company,” he said.

Israel seeks issuance

In deal-related news, Israel is looking to issue two tranches of dollar-denominated notes, according to a filing from the sovereign.

Barclays, Citigroup and Goldman Sachs are the bookrunners for the Securities and Exchange Commission-registered deal.

The proceeds will be used for the general purposes of the state.

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