Fed news gives Lat-Am prices a boost, but Asia stays humdrum; Socar considers issuance

By Christine Van Dusen

Atlanta, July 29 – Emerging markets assets plodded along during Wednesday’s morning session before Latin American prices rose on the afternoon news that the Federal Reserve was leaving open the possibility of a rate increase in September.

“Markets have largely trodden water in European morning trade,” according to a report from Barclays. “This is consistent with a lack of market-moving data releases and little by way of other news to steer markets prior to the [Federal Open Market Committee] decision and statement.”

The tone for Asian credits was firm on Wednesday morning, with investment-grade cash bonds closing that session unchanged to a couple of basis points tighter, a London-based trader said.

“New issues closed a couple tighter,” he said.

China Minmetals Corp.’s new 3½% five-year notes that priced at 99.501 to yield 3.61%, or Treasuries plus 195 bps, traded at 205 bps bid, 202 bps offered after being spotted at 251 bps on Tuesday.

The company’s other new tranche – 4¾% notes due 2025 that priced at 99.858 to yield 4.768%, or Treasuries plus 245 bps – moved to 253 bps before closing the Asian session at 257 bps bid, 252 bps offered. On Tuesday the notes were seen at 205 bps bid, 200 bps offered.

Deutsche Bank, HSBC, JPMorgan, ICBC and Citigroup were the bookrunners for the Regulation S deal.

“Korea was broadly unchanged,” he said. “India opened a touch softer but buyers stepped in, post-London open, and the sector closed 1 bp to 3 bps tighter.”

Asian sovereigns get bids

Sovereigns from Asia were “generally better bid,” another trader said, with sellers only seen for Mongolia’s 2022s and Vietnam’s 2024s.

The afternoon session for Asian markets was “humdrum” after the Fed's announcement and a conservative outlook on the economy, a trader said.

“Treasuries briefly responded, moving seven or eight ticks higher on the 10-year front, but quickly returned to the daily average,” he said. “Corporate flows were silent, with buyers continuing to chase bank names in the 3- to 5-year space.”

Brazil improves

Looking to Latin America, most credits were trading better on Wednesday morning, even names from Brazil, he said.

Vale SA’s bonds “ratcheted in nicely,” he said. “Still seeing small buyers to help its cause, as iron ore continues to recover, up 10% this week.”

Other Brazilian corporates moved up slightly but remained far away from the levels seen a few weeks ago.

Pacific Rubiales range-bound

Notes from Latin America-focused Pacific Rubiales Energy Corp. were still stuck at recent levels while Ecopetrol SA was better-bid but quiet, he said.

“Colombia banks also feeling a bit better,” he said. “Mexico high-grade continues to trade mostly sideways. Activity light, and Cemex SAB de CV flows are fairly even. Buyers continue to chase the longer issues.”

Low-beta Lat-Am improves

Low-beta credit from Latin America built on the positive momentum from Tuesday’s session and saw spreads continue to tighten on Wednesday, a trader said.

Five-year credit default swaps spreads from Brazil ended the session at 283 bps from 292 bps while Mexico’s moved from 90.75 to 90.50.

“Cash prices move higher in the face of weaker Treasuries as the Fed gives the green light to bid up risk assets,” he said.

Both Argentina and Venezuela were firmer on the day, with PDVSA's 2017s closing at 64.75 from 64.25 and Venezuela's 2027s closing at 41 from 39.85.

“Good two-way flows for the day, with better buyers emerging, post-FOMC,” he said.

Small two-way for Ukraine

Activity for bonds from Ukraine has been slow so far this week, said Fyodor Bagnenko, a fixed income trader with Dragon Capital.

“The sovereign saw small two-way flows with some mid-market interest,” he said. “In the corporate space, [Donbass Fuel & Energy (DTEK)] saw continued demand.”

Socar could issue bonds

The State Oil Co. of the Azerbaijan Republic (Socar) could issue bonds to help fund its investment in gas pipelines, a market source said.

Other details were not immediately available on Wednesday.

Socar is a state-owned oil and gas company based in Baku, Azerbaijan.

Rustavi postpones issuance

Georgia’s Rustavi Azot LLC has postponed its planned offering of dollar-denominated notes due in 2020, a market source said.

The notes were initially talked at a yield of 11% to 13%; then, guidance was revised to 12½% to 13%.

Citigroup and Galt & Taggart were the bookrunners for the Regulation S deal.

Other details were not immediately available on Wednesday.

The nitrogen fertilizer manufacturer is based in Rustavi, Georgia.

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