Morning Commentary: EM generally weaker; South Africa down; Papua New Guinea eyes deal

By Rebecca Melvin

New York, Sept. 4 – South Africa’s bonds sold off early Tuesday with spreads pushing out for both sovereign and corporate bonds as the rand slumped amid credit risk worries following the country’s unexpected contraction in second-quarter GDP, according to market sources.

South Africa’s sovereign curve widened 17 basis points to 22 bps on the session, according to a London-based trader.

Meanwhile, South African electricity public utility Eskom Holdings SOC Ltd., which priced $1.5 billion of 10-year notes in two parts last month, was also finding little support, the trader said. And there were retail sellers of FirstRand Ltd.’s 6¼% 2028 notes, of which $500 million priced in April, as well as Barclays Africa Group Ltd., which also traded in decent size on Monday.

Credit default swaps for South Africa were last at 258 bps to 258 bps.

The rand surged well above 15 per U.S. dollar, representing a better than 3% decline on the day and its weakest level of the year.

The Turkish lira was down more than 0.5% to 6.677 per dollar, which was its weakest level in more than three weeks.

Turkey’s central bank said on Monday it will reshape monetary policy next week after inflation accelerated in August to its fasted pace since 2003.

The Argentine peso, another beset emerging markets currency, was reacting to an announcement by Argentina’s president, Mauricio Macri, that his administration would raise taxes and cut spending, bringing forward its target of a balanced budget by one year.

In markets overall, CBOE Volatility, commonly referred to as a fear gauge, was up 8% on the day to 13.83 and up 23% for the month.

Nevertheless, Papua New Guinea mandated banks and scheduled fixed-income investor meetings for a planned U.S. dollar-denominated benchmark offering of senior unsecured notes (B2/B).

A Papua New Guinea issue has long been talked about. The government had proposed selling an international bond in 2016, which was not forthcoming.

Citigroup and Credit Suisse are bookrunners for the planned Rule 144A and Regulation S Papua New Guinea notes.

Also from Asia, China General Nuclear Power Corp. launched €500 million of green notes to yield a spread of mid-swaps plus 150 basis points, according to a syndicate source on Tuesday.

Pricing came at the tight end of revised guidance for a yield spread of mid-swaps plus 150 bps to 155 bps, with initial talk set at mid-swaps plus 155 bps.

Orders for the senior unsecured China General Nuclear Power green notes topped €850 million.

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