Asian bonds stable; Lat-Am slow; Ukraine in headlines; Petrobras could suffer downgrade

By Christine Van Dusen

Atlanta, March 27 – Bonds from Asia were stable on Friday morning, with high-grade cash bonds unchanged to 2 basis points tighter, a London-based trader said.

“Oil names remained in focus after the recovery in crude,” he said.

Malaysia’s Petroliam Nasional Bhd. (Petronas) saw its new 2025 and 2045 bonds tighten 5 bps amid support from real-money accounts, he said.

The deal included $1.25 billion 2.707% Islamic bonds due in 2020 that priced at par to yield Treasuries plus 110 bps and 3½% notes due 2025 that priced at 99.125 to yield Treasuries plus 150 bps.

Another $1.5 billion 4½% notes due in 2045 priced at 98.767 to yield Treasuries plus 190 bps via BofA Merrill Lynch, CIMB and Deutsche Bank in a Regulation S deal.

“Korea’s 10-year continued to leak wider,” he said.

The recent issue of notes from Korea’s Hyundai Capital Services – 2 5/8% notes due 2020 that priced at 99.848 to yield Treasuries plus 125 bps – continued to compress on Friday, as compared to Woori Bank.

“India’s short end remained well-bid while we saw sellers in the 10-year corporates,” he said. “High-yield sovereigns were ½ point to ¾ point lower after the rate move yesterday.”

Ukraine in the news

Looking to Ukraine, sovereign bonds entered the end of the week mostly unchanged, with some better bids after an International Monetary Fund spokesperson hinted that Russia’s $3 billion holding of Ukrainian debt could be viewed as “official.” So far Russia has viewed the debt as exempt from restructuring.

“It was not immediately clear whether the IMF considered the bond official or private sector debt, and what it meant in the context of the fund’s ‘policy of non-toleration of arrears to official bilateral creditors,’” said Fyodor Bagnenko, a fixed-income trader with Dragon Capital. “The official transcript of the press conference shows the IMF spokesman only hinted towards the ‘official’ interpretation but was far from making a definitive statement.”

Meanwhile, most quasi-sovereign banks from Ukraine remained well-bid and corporates saw two-way flows, he said.

Petrobras in focus

Looking to Latin America, Brazil-based Petroleo Brasileiro SA (Petrobras) was at risk of losing its investment-grade rating from Fitch Ratings, according to a report from Schildershoven Finance BV.

The beleaguered company, already wrapped up in a corruption scandal and halting some projects as a result, could lose the rating if it doesn’t accelerate output.

“According to the agency, delivering on production growth is a more important factor for the company’s rating than oil price fluctuation or [currency] depreciation,” the report said. “If the company faces difficulties in achieving its production target, it may become a trigger for a downgrade.”

Still, the company is unlikely to default on its debt.

“Nonetheless, volatility is expected to be very high,” the report said. “The company’s bonds are only for investors with a high risk tolerance.”

Lat-Am performance ‘admirable’

Other Latin American names on Friday morning held in, even amid larger market volatility, a New York-based trader said.

“Even though our trading breadth has little depth, our performance has been pretty admirable,” he said.

Petrobras saw its spreads tighten into the close after a day of lighter-than-normal volumes and amid “ever-changing and contradicting headlines, day to day,” he said.

Among Latin American sovereigns, Argentina’s Bonar 2024s saw selling at 107, down one point from Wednesday.

Bonds from Venezuela and PDVSA were mixed, he said.

Slow, light afternoon

The afternoon session for most Latin American bonds was slow and volumes were light, the New York trader said.

Petrobras widened into the close, he said, ahead of what are likely to be more negative headlines, he said.

Brazil-based Vale SA was still struggling, with spreads close to all-time wides, he said.

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