Turkey better after rate hike, but lira drops back; Venezuela, PDVSA remain in stasis

By Rebecca Melvin

New York, May 24 – Turkey’s bonds jumped on Thursday after the Central Bank of the Republic of Turkey raised its lending rate by 3% in a move to help stem a free fall in the lira.

The bonds bounced around and subsequently pulled back but remained positive late in Europe’s session.

The Turkey 6 1/8% notes due 2028 were recently 93.518, which was up 1.42 point on the day. The bond had jumped to as high as 94.2, compared to its close on Wednesday at 92.098.

Turkey’s lending rate is now 16.5% compared to 13.5% previously. The lira, which had dropped to as low as 4.92 to the dollar, was recently 4.69. Turkey has been struggling with double digit inflation and a sliding currency, but President Recep Tayyip Erdogan has been a vocal opponent of raising interest rates.

Argentina’s bonds were flattish on Thursday after the Argentina central bank opted this week to keep rates unchanged at 40% but retained a hawkish tone. It had hiked to 40% on May 4 to relieve a tumble in the Argentine peso.

The central banks actions have encouraged emerging markets investors that they are willing to do something [to help their currencies], a New York-based market source said.

But overall spreads were a bit wider on Thursday as a risk-off tone spread across the broader markets in tandem with President Donald Trump’s announcement that the June 12 meeting between himself and North Korea premier Kim Jong Un has been cancelled. U.S. stocks and the dollar pulled back while U.S. Treasuries gained. The yield on the benchmark 10-year Treasury note was last up at 2.987%.

A couple of new deals were in the market including Israel Chemicals Ltd.’s $600 million of notes and the Republic of Latvia’s €350 million new 10-year notes and €300 million add-on to existing 2¼% notes due 2047. But other deals remained on the calendar ahead of the long holiday weekend. In the United States, bond markets will close early on Friday and remain closed on Monday in observance of Memorial Day, and in the United Kingdom, financial markets will be closed on Monday for a bank holiday

Venezuela and Petroleos de Venezuela SA bonds were little changed as has been the case all week as the debt seemed to find equilibrium in the days leading up to the presidential election last Sunday – which resulted in the re-election of Nicolas Maduro to a six-term.

Essentially the election was a non-event, and current levels represent equilibrium for the space, a Connecticut-based trader said, noting that volumes are very low.

“There was no selloff. The holders that have positions say let’s wait and the ones that would like to enter find this level expensive,” the trader said.

Despite the fact that the election is now in the rearview mirror, some analysts say regime change can come any time, while others say the situation could remain as it is for the foreseeable future. Investors do not expect any improvement in the pricing of their bonds under a government led by Maduro.

Key bonds opened Monday within a quarter point of where they went out on Friday and through the week there was thin trading in a narrow range.

Venezuela’s 2022 bonds were slightly better at around 30 on Thursday, compared to 29.20 on Monday and 29.50 on Friday.

Venezuela’s 2027 bonds were flattish around 29½ bid, 31½ offered. This bond is down from 32¼ on April 2.

PDVSA 2027 bonds were flat around 25¼ on Thursday. “It’s held in a tight range from last week to within ¼ point up or down,” the trader said of the PDVSA 2027 bonds, which stood at 27¾ on April 2.

© 2015 Prospect News.
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