EM debt steady to higher in light trade; peso rallies with news of U.S.-Mexico trade deal

By Rebecca Melvin

New York, Aug. 27 – Emerging markets debt was steady to slightly higher in quiet trade on Monday as London’s financial players were closed for the summer bank holiday and market players eyed headlines regarding cobbling out a comprehensive trade agreement between Mexico and the United States.

A new trade deal between the neighboring countries was announced around midday in New York and cheered investors who sent Mexico’s currency higher – although bonds were mixed – and breathed life into global stocks as investors seemed to view the deal as a good sign for global trade overall.

The peso was 18.78 to the U.S. dollar, which was improved compared to 19.01 last Monday.

U.S. President Donald Trump announced the deal from the Oval Office with Mexico’s President Enrique Pena on speaker phone, and both leaders referred to Canada rejoining the talks. But Trump suggested the agreement should be renamed the U.S.-Mexico Free Trade Agreement rather than the North American Free Trade Agreement because there are bad connotations to NAFTA in the United States.

The core of the renegotiation rewrites rules for building cars, aiming to ensure that a greater portion of vehicles are built in the region and that more locally produced steel and other materials are sourced in production. The agreement also has new provisions aimed at raising wages and offering new rights to Mexican labor unions. The trading partners were also to agree on the dispute resolution measures that the United States had not liked because of an international tribunal resolving disputes, which the Trump administration said reduces national sovereignty.

A final agreement is expected to be ready by Friday, at which time Trump will notify Congress, which also has to approve the deal, and will be ready to sign it in 90 days.

Commodities were higher, and the U.S. dollar was slightly weaker against many foreign currencies. The Brazilian real was a little stronger against the dollar, posting another day of strength after a downdraft early last week. But the Turkish lira was weaker against the dollar as that market reopened after a holiday.

Petroleos Mexicanos SAB de CV’s 5.35% global notes due 2028 were down about 0.15 to 93.65. The Pemex 6.35% notes due 2048 were last 89.9, which was down a nickel, to yield 7.183%. The Mexico City-based oil and gas company issued both tranches for a combined $4 billion in January.

Mexican corporate Grupo Bimbo SAB de CV’s 4 7/8% notes due 2020 were up slightly to yield 5.304% with a dollar price of just under par.

In the broader markets, the S&P 500 stock index and the Nasdaq stock index hit record highs. The S&P 500 gained 22.05 points, or 0.8%, to 2,896.74; the Nasdaq gained 71.92 points, or 0.9%, to 8,017.90; and the Dow Jones industrial average rose 259.64 points, or 1%, to 26.049.64.

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