Sentiment improves on payrolls data; issuance could pick up; Lat-Am spreads tighten

By Christine Van Dusen

Atlanta, March 4 – Emerging markets assets were stronger on Friday as the United States released data showing that employers in February added more jobs than expected, though wages did dip from the previous month.

“With [non-farm payrolls] out of the way, we move towards the weekend with the market continuing a bullish tone,” a trader said. “With that in mind, next week could be quite supply-heavy after a volatile January and February kept some issuers sidelined.”

Latin American assets finished the week on solid footing, with spreads continuing to tighten, a New York-based trader said.

Brazil’s five-year credit default swaps spreads closed Friday at 406 basis points from 422 bps, while Mexico’s moved to 173 bps from 177 bps.

“Cash prices do slump on United States weakness and short-term buying exhaustion, as well as opportunistic selling,” he said. “Lat-Am high yield finishes mixed on the session.”

Venezuela’s 2027s ended at 40.50 from 41, PDVSA’s 207s dipped to 53.50 from 54, and Argentina’s Bonar 2024s finished the session at 108.20 from 107.

“Flows lightened up significantly today, with not a whole lot of conviction seen either way,” he said. “Markets are now eagerly awaiting European Central Bank action next week and what it means for various asset classes.”

Among Latin American corporates, Chile’s Cencosud SA moved higher on strong earnings, another trader said.

Brazil-based Vale SA and Petroleo Brasileiro SA also moved higher, as did Gerdau SA.

“Chile and Mexican high grade remained bid,” he said. “[Cemex SAB de CV] also managed ½-point to 1-point gains depending on the bond. But clients were better buyers.”

Buyers emerge

In fact, buyers far outnumbered sellers for Latin American credit. That is notable because buyers have been quiet, the trader said.

“With the strength we now have behind this market, sure, we could see some profit taking after such large gains. But it will take more than just a some global market friction to send our stuff much lower,” he said. “Money mandates seem to be in play and being put to work, a scenario which should continue in the short term.”

Asia, Pakistan strong

Asian bonds opened strongly on Friday morning, another trader said, and Turkey’s sovereign and corporate bonds remained “fairly attractive.”

Pakistan bonds continued to trade “super well,” with real-money lifting the curve as locals sold the 2016s ahead of their maturity this month, he said.

IMF to visit Zambia

In other news, a team from the International Monetary Fund is expected to visit Zambia this month, following the IMF’s approval of an economic recovery program.

“This will provide the opportunity to set the objectives and the framework for further negotiations,” a strategist said. “The sub-Saharan African state is currently struggling from lower commodity prices, adverse weather conditions and widespread electricity shortages ahead of general elections in August.”

Tunisia could access loans

Tunisia, meanwhile, may be able to access a $2.8 billion emergency loan facility from the IMF in the coming weeks, he said.

“Political and social instability have been driven by economic weakness, unemployment, corruption and risks from terrorism over the last year,” he said. “The government therefore intends to use the funds in its five-year development plan to boost the economy, create jobs and raise living standards.”

Looking to Ukraine, bonds entered the end of the week “modestly stronger” with “light activity,” said Fyodor Bagnenko, a fixed-income trader with Dragon Capital.

“Corporates were slightly more active,” he said.

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