EM debt eyes constructive backdrop; Slovak Republic on calendar; Petrobras edges back up

By Rebecca Melvin

New York, June 4 – Emerging markets debt was feeling a little healthier on Monday, and the Slovak Republic joined the forward calendar for the Central & Emerging Europe region as the U.S. dollar edged lower and Treasuries slipped.

“The markets are more stable today and provide a constructive backdrop,” a London-based market source said of emerging markets debt, adding that markets remain on guard for the next news from the Trump Administration regarding trade and other international matters.

The Slovak Republic plans to price a euro-denominated benchmark with a tenor talked at both 10 years and 50 years.

“Slovakia is now reaching out to investors to see if [a note of] 50 years is doable,” the source said.

Barclays, Citigroup, Erste Group and Raiffeisen Bank International Group are joint lead managers and joint bookrunners of the Regulation S Slovak deal.

Petroleo Brasileiro SA’s bonds recouped about a point on Monday after losing 2 to 3 points on Friday after unexpected news that its chief executive officer resigned. The news prompted speculation about Brazil’s ability to implement economic reforms. The losses in Petrobras notes weighed on the broader emerging markets debt market.

But on Monday, Petrobras 5¾% bond due 2029 printed late in the day at 88.8, which was up 1.5 points from 87.255 at the end of Friday. The improvement was on heavy volume.

The Petrobras 7 3/8% notes due 2027 also bounced back, trading late in the day on Monday at 101 and change, compared to about 99.8 at the end of Friday.

But Jordan’s notes were under pressure after Jordan’s prime minister Hani al-Mulki resigned on Monday amid protests over tax reform legislation and implementation of International Monetary Fund reforms. The prime minister’s move was taken in an attempt to calm protestors, who said Mulki’s economic policies have increased price pressures being shouldered by Jordanians.

There are calls for the government to scrap a new tax law and change the overall approach to economic and social policies. Unions have called for a general strike on Wednesday and have vowed to continue demonstrating until a new approach to the government’s policies are introduced.

The reforms are being taken in part to reduce Jordan’s $37 billion of debt, which is equivalent to about 93% of the gross domestic product.

Jordan’s 5¾% notes due 2027 dropped about 0.9% on Monday to 92.8 in thin volume. That was lower from about 95 to 96 in the middle of last week.

Turkey’s currency was stable on Monday while the Turkey 5 1/8% notes due 2028 slipped about 0.3 point to 88.5. Foreign outflows from Turkish bonds amounted to $638 million in the week ended May 18, the biggest weekly outflow since November 2016, according to data from the central bank.

Mexico’s bonds were also under pressure. The Mexico 4 1/8% notes due 2026 were down 0.4 point to 99. The Mexican government has promised to retaliate for the tariffs that the United States implemented on steel and aluminum products starting on June 1.

Mexico has promised to impose barriers of its own that will be equal to the cost to its own economy. There are estimates that the cost to Mexico’s steel industry will run to about $2 billion. The American Iron and Steel Institute issued a statement thanking the Trump Administration for the sanctions but asking for NAFTA negotiations to continue. The market is eying Mexico’s presidential election on July 1, which will make it difficult to conclude the NAFTA talks in the near term.

© 2015 Prospect News.
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