EM debt spreads wider; oil exporting sovereigns weaker; Gazprom bid below par; CEZ prices

By Rebecca Melvin

New York, Nov. 15 – Spreads for emerging markets debt were wider on Thursday amid lighter trading flow in New York’s trading session as market players eyed an impending winter storm and the region’s first substantive snowfall of the season.

“Looking at the chatter, it’s quiet,” New York-based emerging markets fixed-income strategist Michael Roche said. “I have the storm tracker radar up on my screen.”

Overall, spreads were 2 to 3 basis points wider on the day for much of emerging-markets sovereign debt, with some oil-exporter credits taking bigger hits, Roche of Seaport Global Securities said.

Ecuador was a notable underperformer with its sovereign credit spread wider by 19 bps. Mexico, Argentina and Ukraine were each wider by 6 bps.

South Africa was wider by 2 bps and Asia’s sovereigns were “wider by twos and threes.”

“Today there are some difficulties with the smaller exporters,” Roche said.

Oil prices edged up on Thursday after rebounding on Wednesday from Tuesday’s 2018 low mark as concerns regarding unexpected oversupply have dragged prices lower since the beginning of October.

West Texas Intermediate crude oil for December delivery ended 31 cents higher, or up 0.6%, at $56.56 a barrel on the New York Mercantile Exchange on Thursday. The benchmark had its steepest plummet in more than three years on Tuesday, ending 7.1% down at its lowest closing price this year, $55.69 a barrel.

On Thursday, Petroleos Mexicanos SAB de CV’s 6½% notes due 2027 traded actively and were down to about 93.25 from 94ish on Wednesday.

Pemex’s 6¾% notes due 2047 were last trading with an 83 handle from an 84 handle on Wednesday.

Brazil’s Petroleo Brasileiro SA bonds were jumping around, but the Petrobras 5.999% notes due 2028 were last 95.8 which was little changed from 95.9 last on Wednesday. Petrobras’ 8¾% notes due 2026 traded last at 113, which were down from about 113 7/8 bid, 114 offered on Wednesday. And Petrobras’ 7 3/8% notes due 2027 traded at 103.9 last from 104.6 last on Wednesday.

Elsewhere, PJSC Gazprom’s 2.949% five-year notes, of which €1 billion notes priced at par on Tuesday, were bid just below par. The Moscow-based natural gas producer’s notes were quoted at 99.89.

Meanwhile the spread on the JPMorgan Emerging Markets Bonds Global Diversified Index was wider by 2 bps on the day at back up over 400 bps, which was within a few basis points of its wides for the year.

The JPMorgan EMBI global hit 407 on Sept. 4. Subsequently the index rallied back down to 358 as buyers stepped in at what was viewed as attractive pricing.

It is less likely that buyers will step back in as easily now. “[The index] has reversed course, and clearly, in view of the way of the world, the higher levels will be tested. There doesn’t seem to be enough conviction. There is a bearish, cautious tone here.”

Spreads have widened from the October low amid information shocks and the equity downturn, to which emerging markets debt investors reacted pretty passively.

But although the market is generally weak, the Czech Republic electricity company CEZ as was able to price €500 million of 2022 notes at a new issue premium of 10 bps. The CEZ 7/8% notes due 2022 at 99.93 to yield mid-swaps plus 70 bps, a London-based market source said.

Also pricing was the United Arab Emirates’ NMC Healthcare Sukuk Ltd., owned by NMC Health plc, which brought a $400 million five-year sukuk, or Islamic bond, at 99.787, with a distribution rate of 5.95%.

The NMC Healthcare sukuk was priced at a spread of U.S. Treasuries plus 303 bps.

NMC Health operates one of the largest wholesale distribution businesses in the United Arab Emirates, including consumer goods, pharmaceuticals and scientific equipment.

Elsewhere, Corporacion Andina de Fomento (CAF), a Caracas, Venezuela-based regional development bank, launched $750 million of five-year global notes to yield mid-swaps plus 79 bps. Final pricing was expected to be set later Thursday, according to a syndicate source.

Pricing was set on top of initial spread talk that was in the mid-swaps plus 80 bps area.

Proceeds will be used to repay debt set to mature during the first half of 2019.

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