Brazil, Petrobras bonds remain strong after run-off, but corporates trim gains; Middle East and Africa quiet

By Rebecca Melvin

New York, Oct. 9 – The bonds of Brazil and Petroleo Brasileiro SA extended gains Tuesday as investors continued to cheer the victory of right-wing candidate Jair Bolsonaro in a run-off vote for president on Sunday.

But some of Brazil’s corporate issues trimmed gains in the aftermath of the vote. And it looked like potential issuers will continue to hold off doing deals in favor of a stronger window of opportunity.

Petrobras’ 8¾% bonds due 2026 were actively trading around 111.5, which was up to 109.5 from 109 on Friday but off from 112 on Monday.

Petrobras’ 6.85% bonds due 2115 were higher 89.5 bid, 90 offered, compared to Friday’s trades around 87, but off slightly from the 90.5 trade and a couple of other prints that registered on Trace data on Monday.

Bolsonaro took 46% of the vote, compared to 29% for second place finisher Fernando Haddad, the left-wing People’s Workers party candidate. An Oct. 28 runoff between the two candidates is scheduled.

The Bolsonaro effect influenced other races, giving his conservative PSL party control of the lower house of Congress, with 52 seats. The PSL party will now be the second-biggest political party in Brazil’s next government.

But while markets were hopeful for a Bolsonaro victory, price moves after the vote were more muted than some had expected.

Vale SA’s 6¼% bonds due 2026 traded better by only 0.15 point on Tuesday at 108¾, for example.

“The moves in the broader corporate market were more modest, but we had a big run up before the election despite the fact that Treasuries were selling off,” a New York-based market source said.

“Some issuers were disappointed that they didn’t have more of a rally after such a surprising electoral win, but when you put the Brazilian rally in the context of what is going on in the broader market and concerns about China, Italy and Brexit, the move was pretty strong,” the source said, and the sovereign and Petrobras remained higher.

There should be a pickup in issuance, but it may not be ahead of third-quarter earnings reports, which are expected to begin late this week.

Last week Brazil’s sovereign 4 5/8% notes due 2028 closed the week more than 30 bps tighter to yield Treasuries plus 247 bps on Friday, compared to Treasuries plus 280 bps on Monday.

Brazil’s 2048 notes were closing at Treasuries plus 312 bps, compared to Treasuries plus 336 bps on Monday.

In the Latin America primary space, Millicom International Cellular SA is planning to price $500 million senior unsecured notes due 2026 (expected rating: Ba2//BB+).

The Luxembourg-based telecom will use proceeds toward its acquisition of an 80% stake in Panama-based company Cable Onda.

Emerging markets bonds elsewhere were little changed. A London-based trader said markets in the Middle East and Africa region were unaffected by a dispute between Turkey and Saudi Arabia over the disappearance of a Saudi journalist in the Saudi Consulate in Istanbul. Turkey’s decision to search the Consulate on Tuesday was not affecting the bond market, the trader said.

ProCredit Holding AG & Co. KGaA began a roadshow on Tuesday regarding a euro-denominated, sub-benchmark green bond with a three-year tenor (expected rating: //BBB), according to a syndicate source.

After meetings held in Frankfurt Paris, London and Amsterdam, the roadshow will wrap up on Friday, with a deal to price thereafter subject to market conditions,

Deutsche Bank and ING are joint bookrunners for the senior unsecured notes transaction.

Based in Germany, the development-oriented commercial banking group focuses on small and medium enterprises in Eastern Europe.

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