Morning Commentary: EM debt treading water early; currencies steady; Mexico weakens

By Rebecca Melvin

New York, Oct. 30 – Emerging markets debt was treading water early Tuesday but was under pressure as oil prices fell amid supply and trade concerns. Meanwhile, the broader markets remained mixed, according to market sources.

The Turkish lira was at 5.49 to the U.S. dollar, which was near two-month lows; and Brazil’s real was at 3.71 to the dollar, which was much better than its Sept. 30 mark at well over 4 to the dollar, although off from 3.64 to the dollar notched on Friday.

Meanwhile, the Mexican peso was much weaker, spiking to more than 20 to the dollar on Monday from 19.36 on Friday after president-elect Andres Manuel Lopez Obrador said he is cancelling a $13 billion airport project and fanning fears that the leader may veer left away from business-friendly policies.

Mexico’s bonds remained under pressure on Tuesday. Petroleos Mexicanos’ 6˝% bonds due 2027 fell below 97 on Tuesday.

Elsewhere, Islamic Development Bank was talking its debut euro sukuk, a €500 million five-year issue expected to yield mid-swaps plus 20 basis points to 25 bps, according to a market source on Tuesday.

The initial price guidance was coming a week after roadshow meetings wrapped up. Credit Agricole, LBBW, Natixis and Standard Chartered are bookrunners for the Regulation S notes for the Jeddah, Saudi Arabia-based lender.

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