Emerging markets focus on ECB, Comey and U.K. vote; Oman tanks; Venezuela credit widens

By Rebecca Melvin

New York, June 8 – No new issues in emerging markets priced out of London on Thursday, but several deals were being marketed including two benchmark tranches promised by the Ivory Coast, sources said.

Market players were focused primarily on potential market-moving developments related to a European Central Bank announcement, testimony by former FBI director James Comey in a U.S. congressional hearing and the general election in the United Kingdom, sources said.

The ECB did not announce any policy changes on Thursday and only tweaked forward guidance by saying it will move away from quantitative easing at some point in the future, but not before the year is out and possibly beyond. The euro fell against the dollar.

Comey told a Senate panel that he had no doubt the Russians tried to influence the 2016 U.S. presidential election and described conversations he had with President Donald Trump before he was fired last month. But it was not clear whether he exposed impeachable actions, and the Comey testimony had no measurable effect on emerging markets, a New York-based market source said.

The U.K. vote could move markets, however. If Theresa May, who has served as United Kingdom’s prime minister since July 2016, is not able to maintain a parliamentary majority, it may affect upcoming Brexit negotiations. It may also shake the pound and have other market effects.

“Sterling is the most vulnerable, but there are a number of layers, and a few scenarios that have created greater uncertainty,” a London-based market source said.

Emerging market “deals got done yesterday and the day before, but now we have to wait for the vote results overnight,” the source said.

If a conservative majority does not hold, and there is a hung parliament or some other result, it would be a shock, the source said.

Meanwhile, tensions continued to simmer in the Middle East, with sovereign and bank paper of the Gulf States region moving back and forth in active trade.

On Monday, Saudi Arabia, Bahrain, Egypt and the United Arab Emirates cut diplomatic ties with Qatar, accusing Qatar of backing terrorism.

“There are loads of moving parts in this Qatar situation,” a London-based trader said, adding that he did not see it as something that would be resolved over the course of a few days.

In the meantime, Qatar saw its 2026 notes move from 10 basis points wider at the open on Thursday an S&P downgrade overnight to about 10 bps tighter by the close as buyers stepped in.

S&P cut Qatar’s long-term rating to AA- from AA, citing the regional dispute.

Oman moved sharply lower on the day. “The curve is 20 bps to 30 bps wider depending on the bond and is “just very well offered,” the trader said of the Oman sovereign paper.

In contrast Bahrain and Saudi Arabia were trading well. Bahrain was better by 2 bps with the Bahrain 2028 notes trading between 104¼ bid and 104.65 offered, the trader said.

In Latin America, emerging debt was subdued, and trading was in line with developments in the United States. But Venezuela was an exception, a market source said.

Venezuela credit spiked as violent protests against the government of Nicolas Maduro escalated.

Five-year credit default swaps for Venezuela, which had been trading in a range, blew out to 3,665 bps on Thursday, compared to 3,156 bps on May 31. Previously they had been trading in a range of between 3,200 bps to 3,400 bps.

As the social tensions in Venezuela worsen so does speculation about possible credit default and debt restructuring, sources said.

On Wednesday, a teenager died in a clash between protesters and security forces in Caracas, bringing the death toll to at least 66 since demonstrations against Maduro began about two months ago.

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