EM debt primary quiet with summer slowdown; Turkey improves in secondary; Mexico steady

By Rebecca Melvin

New York, July 19 – Emerging markets remained quiet on Thursday with no new issuance announced or priced in the Central & Eastern Europe, Middle East and Africa or Latin America regions, according to market sources. Asia was also quiet.

But although the market has quieted down amid the summer vacation period, many anticipate that the new issue market will start out strong when it is back to business in September.

“I’ve already heard rumors that there are a lot of deals in the pipeline,” a London-based market source said, explaining that there were deals announced in the spring that did not proceed, and now that the shock [of market conditions] has passed, they may come back and price.

The lack of primary supply has been one of the factors helping the secondary market, which “has been reasonably constructive this week,” the source said.

“It’s doing okay,” and if the secondary remains firm that could help the primary when it reignites. Another factor helping the secondary was positive funding flows for the first time in multiple weeks.

Turkey was better again on Thursday, as has been the case for much of the week, the source said, attributing the improvement to a slight reduction in negative geopolitical headlines, including trade tariffs.

Turkey has improved on investors getting more comfortable with the new cabinet there, the source said.

A selloff in reaction to the re-election of Recep Tayyip Erdogan as president on June 24, which heralded a new executive presidential system of government, may have been deemed to have been overdone, the source said.

Mexico was steady with a slight drop back in the Mexican peso from a strong point notched on Monday. The bonds seemed stable at only 1 or 2 basis points higher, a New York-based market source said.

Petroleos Mexicanos SAB de CV 6½% notes due 2027 were little changed at 103.65. The bond has traded in the high 103 to 104 range mostly in recent days.

The Pemex 5 5/8% notes due 2046 added 0.25 point to 87.20. Those notes had dropped to below 78 in early June, and the Pemex 6¾% notes due 2047 were essentially unchanged at 102.10.

Mexico’s sovereign bonds slipped a little however. The newer Mexican 3¾% notes due 2028, of which $2.6 billion priced in January, were down 0.1% at 95.72, and the Mexico 4.6% notes due 2048, which priced at the same time, were at 95.13, which was down 0.2%.

Mexico filed a shelf registration statement for $10 billion of debt securities this week with the Securities and Exchange Commission. Although market players were not speculating on the timing of possible debt offerings, it was thought to be another step in the right direction.

Mexico’s bonds and the currency have strengthened since the victory of Andres Manuel Lopez Obrador in the July 1 presidential election. The President-elect has adopted a less confrontational tone toward business and investment compared to earlier in his campaign.

Meanwhile comments on Thursday by U.S. President Donald Trump rattled markets, sending U.S. Treasuries higher and wiping out session gains in the U.S. dollar. In an interview with CNBC, Trump weighed in on Fed policy, saying that he did not approve of the U.S. Federal Reserve raising rates. Such comments are a break from tradition that presidents remain quiet on monetary policy.

Trump said he expected that the Fed would do what it feels best for the economy and called current Fed Chairman Jerome Powell “a good man,” but asserted that personally he does not like seeing rates go up.

The U.S. dollar currency index closed down 0.1% at 94.97.

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