Brazil bonds, currency weaker, but EM debt firmer overall; EM primary in deep slumber

By Rebecca Melvin

New York, Aug. 21 – Brazil’s sovereign and corporate bonds edged lower for a second day and the Brazilian real dropped on Tuesday amid jitters over the country’s upcoming presidential election. The debt of Latin America’s other major sovereigns was firmer however, as was emerging markets debt in general during a risk-on day in the financial markets.

According to a new poll released on Monday, Luiz Inacio Lula da Silva’s lead in Brazil’s presidential race increased 5% since May even though the jailed former president will likely be barred as a candidate in the October election.

Lula took 37.3% of the votes in a CNT/MDA poll, which was conducted Aug. 15-18 and last taken in May. Far-right candidate, congressman Jair Bolsonaro, polled second with 18.3% of the votes, environmentalist Marina Silva garnered 5.6%, and center-right former governor Geraldo Alckman, the business-friendly candidate, had only 4.9%.

Most of the Brazilians polled said if Lula, who is serving a 12-year sentence for a corruption conviction, were not allowed to run, their votes would transfer to his running mate Fernando Haddad.

Brazil’s 4 5/8% notes due 2028 slipped just 0.1% to 92.392. Brazil’s 6% notes due 2026 were down 0.15% at 104.097 from 104.247 on Monday.

Fibria Celulose SA’s 4% green bonds due 2025, of which $600 million priced last November, ended just slightly lower at 93.90 bid, 94½ offered, down five cents from 94.05 on Monday.

The Brazilian real weakened to 4.05 real to the U.S. dollar. The level was 3.97 real to the dollar on Monday.

Venezuela’s sovereign and Petroleos de Venezuela SA bonds remained little changed as the new economic plans of president Nicolas Maduro went into effect.

“The economic plan did not really affect the bonds,” a New York-based trader said. “Volumes are very low but the dips seem to draw buyers.”

The PDVSA 8½% bonds due 2020 were called “stuck” in the context of 87 bid, 88 offered.

While Venezuela’s 2034 notes were trading a tiny bit better on buyers at 27½ bid, 28½ offered.

Meanwhile, a lull that is typical during the summer months has been more pronounced this year due to troubles that hit the Turkish lira, Argentine peso and other emerging-markets currencies last spring in the face of the strengthening dollar. Some wonder if the full-blown lira crisis that hit this month will push issuers further away from the market, even in September, when issuance typically restarts.

“I suspect September and October could be active if the backdrop is OK,” a London-based market source said, adding that there are Gulf Cooperation Council sovereigns that are expected to bring deals as well as a few banks.

Turkey is more of a question mark, the market source said. “Clearly, nothing can happen at the moment.”

Some regions have been particularly hard hit by currency turbulence. In Latin America, there have been only a handful of U.S. dollar-denominated deals that have priced since May.

The Central & Eastern Europe, Middle East and Africa region has also been painfully slow, while Asia continues to pump out deals, albeit at a slower pace.

For the week ended Aug. 10, Hong Kong-based China Merchants Port Holdings Co. Ltd. priced $1.5 billion of five- and 10-year notes, China Mengniu Dairy Co. Ltd. sold $500 million 4¼% five-year bonds and Macau’s Sands China sold $5.5 billion of notes due 2023, 2025 and 2028.

Notably, South Africa’s Eskom Holdings SOC Ltd. came in the middle of the summer lull with $1.5 billion of notes in two 10-year tranches. A $1 billion 10-year tranche is guaranteed by the South African government while a $500 million tranche of 10-year notes is not guaranteed. But both saw strong demand. That deal was brought by joint bookrunners Barclays, JPMorgan, Standard Bank and ABSA Bank.

Also, Angola priced a $500 million tap of its 9 3/8% notes due 2048 in the middle of July.

In the broader markets, the S&P 500 stock index marked a record high on Tuesday amid positive earnings reports and expectations that U.S. trade conflicts with China and elsewhere may be resolved.

The S&P 500 closed at 2,862.96, which was up 5.91 points, or 0.2%.The Dow Jones industrial average and Nasdaq stock market were also higher, but all the U.S. indexes closed off their high levels of the day, and U.S. Treasuries slipped.

The iShares J.P. Morgan U.S. Dollar Emerging Markets Debt ETF added 30 cents, or 0.2% at 107.18 at the end of the New York session.

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