Emerging markets turn mixed; Iraq bond drops; Argentina tightens; Venezuela, PDVSA jump

By Rebecca Melvin

New York, Aug. 11 – Emerging markets turned mixed on Friday with some regions remaining heavy, but little changed, while a few bright spots developed amid ongoing heated rhetoric between the United States and North Korea.

The Republic of Iraq’s 6¾% notes due 2023, of which $1 billion priced on Aug. 2, slipped below par to trade at 99½ bid, 100 offered. That was down from 99 7/8 bid, 100¼ offered seen late Thursday and down from 100.35 bid, 100½ offered a week ago.

Spread widening that had intensified on Thursday moderated by Friday. Nevertheless, spreads had moved “meaningfully” wider, with seven- to 10-year emerging markets sovereign credits wider by about 10 basis points on average by Friday, according to Trieu Pham, CEEMEA strategist at MUFG Securities EMEA plc.

Looking ahead, Victor Fu, director of emerging market sovereign strategy at Stifel, does not expect emerging markets to see significant further weakening and viewed this week’s move as a necessary pullback used by investors to take some profits.

During Friday’s session, some regions improved, Fu pointed out. In Latin America, for example, Argentina’s sovereign credit spreads tightened about 5 or 6 bps.

Also on Friday, Venezuela and Petroleos de Venezuela SA bonds appear to be stabilizing from the past few days’ weakness due to a lack of selling in the absence of economic sanctions imposed on the country by the United States.

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