EM ends week on better tone; Asia mostly unchanged; Brazil ‘attractive’; Uruguay trades

By Christine Van Dusen

Atlanta, Oct. 2 – Emerging markets assets on Friday morning were on fairly firm footing, with a pick-up in spreads, even after the release of weak economic data from the United States.

The U.S. economy added 148,000 jobs in September, and payrolls increased less than expected while the unemployment remained flat to August’s 5.1%. As investors pondered what impact this would have on emerging markets economies, spreads picked up for the bonds, a trader said.

“EM is lagging the U.S. Treasury move, so all those people complaining the market had tightened before they could get in this week – you can buy now,” he said.

The tone, overall, was better by Friday, another trader said.

“I think the month-end rebalance and top-up helped put the brakes on what could have been a proper rout,” he said. “There was just such a lack of conviction to step in and buy from investors due to the worries of outflows.”

Investment grade bonds from Asia were unchanged to 3 basis points tighter on Friday, another trader said.

“However, the market lost momentum, post-London open, and we closed the day broadly unchanged,” another trader said.

Korea bonds were unchanged while notes from India were “generally firm, with buyers in 10-year corporates and short-dated financial paper,” he said.

Sovereign bonds from Turkey traded well on Friday, with the curve gaining some steepness before trading very flat, another trader said.

“We started to see some interest in bank paper,” he said.

Pemex, Mexico tick down

Looking to Latin America, bonds were mostly illiquid at the end of the volatile week, a New York-based trader said.

Spreads for Petroleos Mexicanos SAB de CV versus Mexico “have come down a little, but some bonds in the belly – particularly the 2019s and 2024s – look extraordinarily cheap to Mexico and the curve,” he said.

On Friday, two-way flows were seen for many names, with “lots of trading flow today,” another trader said.

Lat-Am in focus

In other trading from Latin America, Uruguay’s 2024 bond continued to be a standout, a trader said.

“The best performer on this curve,” he said. “This could be attributed to the ample liquidity found in this bond versus other Uruguay maturities.”

Meanwhile, Peru saw its curve steepen, with the 2025s and 2027s outperforming, another trader said.

“Seems to be following the U.S. Treasury curve steeper,” he said.

And Panama’s cash prices were “difficult to navigate here, as spreads widen but U.S. Treasuries rip,” he said. “It does feel a touch higher, with a few prints.”

Brazil sees ‘little activity’

From Brazil, the sovereign’s 2021 bonds were “attractive,” the trader said.

“Clients are clearly scared about the implications of Congress defeating [President Dilma Rousseff’s] vetoes next Tuesday, so we saw very little activity from them,” he said. “A week ago the market would have reacted very badly to the postponement of the vote, as government whips had to cancel the vote due to the high likelihood that they would be defeated.”

On Friday, Brazil-based Petroleo Brasileiro SA was “trying to grind higher,” another trader said.

“We’ve bounced hard off the lows and held, and because of that, it’s no longer viewed as an eight-point rally, so it’s fitting to see it trying to grind higher,” he said. “Inquiry however, is very light. Probably slightly better buying as well.”

Caixa delays IPO

In other news from Latin America, Brazil’s Caixa Economica Federal delayed the initial public offering of its Caixa Seguridade insurance business as a result of market conditions.

“We consider the bank’s bonds due 2017 as a good opportunity for investors with a low risk tolerance,” according to a report from Schildershoven Finance BV. “We don’t expect any substantial market reaction as a result of this announcement, as to some extent it was predicted by the market.”

Profit takers for Ukraine

From Ukraine, sovereign bonds saw some profit-taking in small volumes and corporates put in mixed performance, said Fyodor Bagnenko, a fixed-income trader from Dragon Capital.

“Quasi-sovereigns were bid after a recent sell-off, to close 1 point stronger,” he said at the end of the week.

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