Morning Commentary: Emerging markets lose steam; Mexico trades ‘super-well’; Pemex sees sellers

By Christine Van Dusen

Atlanta, Jan. 20 – Emerging markets assets lost some traction on Wednesday morning, with the previous day’s bounce eroding as commodity prices faced renewed pressure.

“Liquidity is tightening, and the stock market is melting down,” according to a report from Commerzbank.

But given Tuesday’s bounce, related to better-than-expected but still weak economic data from China, “you have to believe that we are finally seeing some attempt to buy the dip,” a London-based trader said.

“This, I'm suspecting, has been helped by the cash positions increasing as funds get paid coupons and bond maturity proceeds,” he said. “Today is going to be another challenging session.”

Investors showed some interest in bonds from Turkish banks and corporates, he said, as well as some Middle Eastern banks.

Meanwhile, bonds from Mexico managed to trade “super-well, given how the rest of the market and United States credit are opening,” a New York-based trader said. “Wider, yes, but barely changed in price.”

Flows were mixed on Wednesday morning, he said.

“But I do not know where the bids are coming from,” he said. “Mexico seems to be defying gravity here.”

Petroleos Mexicanos SAB de CV's bonds, however, traded lower and saw only sellers on Wednesday, he said.

Looking to Ukraine, some sovereign bonds have seen stronger bids so far this week, but activity has been limited as “attention stayed with global markets,” said Fyodor Bagnenko, a fixed income trader with Dragon Capital.

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