Oil price decline pressures high beta EM bonds; Minerva prices bonds; Venezuela debt falls

By Paul A. Harris

Portland, Ore., Sept. 9 – Declining crude oil prices on Friday pressured high beta emerging markets bonds with deep exposure to oil, a trader said.

The barrel price of West Texas Intermediate crude for 2016 delivery was down a buck, or 2.1%, at $46.62 in the New York mid-morning.

Oil staged a rally earlier in the week, as inventories in the United States saw their biggest decline since 1999, the source recounted.

The news saw prices rallying nearly 5% earlier in the week, with tailwinds from anticipated disruptions caused by hurricane Hermione in the Gulf of Mexico.

Equities and government bonds were also creating a drag on emerging markets debt prices, a trader said.

The Dow Jones industrial average fell 2.13% on the day.

Meanwhile Treasuries were substantially wider, with the 10-year yielding 1.67%, nearly 7 basis points wider on the day.

Emerging markets bonds continued to be well bid late in the post-Labor Day week, according to the trader.

The iShares JPMorgan USD Emerg Markets Bond (EMB) ETF fell $1.15, or 0.98%, to finish at $116.28 per share.

New Minerva 2026 softens

Brazilian food processor Minerva SA priced $1 billion of 6½% 10-year bonds (BB-) at 99.096 to yield 6 5/8% on Thursday.

The deal was trading softer heading into Friday afternoon at 99.05 bid, 99.35 offered, a portfolio manager said.

The Sao Paulo-base company plans to use the proceeds to fund a tender offer for its 7¾% senior notes due 2023 and for general corporate purposes.

It was risk off, as Friday progressed, with better sellers in Latin American corporates, a source said.

Bonds of Ecopetrol SA were down 2½ points.

Cemex paper was off 1¼ points.

Lately, resilient Peruvian banks were lower, the source said. Colombian banks fared somewhat better.

Mexican high grade bonds were outperformers.

Venezuela drops

The fall in crude oil prices took an expected toll on Venezuelan debt.

Venezuela sovereign bonds were down generically 1% to 1.25% across the curve, early Friday New York-time, a trader said.

Venezuela’s benchmark 9¼% notes due 2027 were down ¾ of a point at 50¼ bid, 51 offered.

At the long end of the curve the 7% bonds due 2038, at 42¼ bid, were yielding 17¼%, the trader said.

Quasi-sovereign paper of Petroleos de Venezuela, SA (PDVSA) was down ¼% to ½%.

The PDVSA 6% notes due 2024 were 39 bid, 39¾ offered, down ¼.

Adding to Venezuela’s woes was testimony in open court in New York from an agent of the U.S. Drug Enforcement Administration characterizing the Venezuelan government as protective of or even complicit in the drug trade, the source said.

The characterization came in the trial of Efrain Campo and Francisco Flores, nephews of Venezuela’s first lady Cilia Flores, who are attempting to suppress confessions that they attempted to smuggle 1,800 pounds of cocaine into the United States, made in the wake of a DEA sting operation.

That moves the taint of narcotics trafficking uncomfortably close to Venezuela’s first family, the source remarked.

© 2015 Prospect News.
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