Oil dips but EM solid; Lat-Am spreads tighten; Qatar sees demand; Kuwait names eye deals

By Christine Van Dusen

Atlanta, Feb. 4 – Most emerging markets assets put in a stronger session on Thursday, even as oil prices dropped amid worries that Venezuela would not be able to persuade other crude producers to cut output.

Latin American bonds opened with a better tone on Thursday, following weaker sessions earlier in the week, led higher by names like Brazil-based Petroleo Brasileiro SA and Vale SA, a trader said.

Mexico-based Cemex SAB de CV’s bonds were up a bit after the company reported its first annual profit in six years, “which the equity market is considering quite an accomplishment,” he said.

Sovereign names from Latin America ended the day with tighter spreads and some higher prices, with Brazil’s five-year credit default swaps spreads finishing at 472 basis points from 481 bps and Mexico’s at 199 bps from 203 bps.

“Cash prices were balanced for the day with a continued steepening bias seen throughout most curves,” another trader said. “Latin American high yield gains on the session, with both Venezuela and Argentina higher.”

Venezuela’s 2027s finished at 37.75 from 36.50, PDVSA’s 2017s ended at 41.50 from 41, and Argentina’s Bonar 2024s closed at 107.75 from 107.50.

“All eyes are on the non-farm payrolls tomorrow, to give any insight as to where rates and risk assets may head next,” he said.

Meanwhile, “Asian bonds are trading higher today, recovering losses from beginning of the week,” according to a report from Schildershoven Finance BV. “Gains are driven by positive commodity prices dynamics and a risk-on mood in the U.S. session.”

Middle East in focus

From the Middle East, the session was “solid,” with “serious demand” for bonds on the long end of Qatar’s curve, a London-based trader said.

“Dubai [names] traded well,” he said. “We’re 10 bps to 15 bps tighter on the Bahrain curve.”

Perpetual bonds were popular, he said.

This came as the United Nations suspended the Syria peace talks until later this month, a “major setback after the scheduled start on Jan. 29,” the strategist said. “There are diverging views about whether the talks have officially started at all, mainly because opposition forces claim that talks cannot take place while the Syrian government forces conduct attacks.”

The talks will “likely face many further challenges, even if the peace process eventually starts, given the varying goals among the opposition groups, the recent tensions between Iran and Saudi Arabia, and the lack of a common strategy against [ISIS],” he said.

CSN bonds decline further

Brazil’s Companhia Siderurgica Nacional (CSN) received some attention on Thursday as the bonds continued to decline, moving as much as 10 points lower, on ratings actions from Fitch Ratings and Moody’s Investors Service.

Fitch downgraded CSN from B+ to B-/negative, while Moody’s moved CNS from B1 to Caa1/negative.

That spurred quite a bit of selling, a trader said.

“What’s most interesting for us is the absence, since Monday, of a Street bid that, for the last few months, has helped to keep prices at a pretty stable level,” he said. “At the company level, the situation is fundamentally stressed, though someone somewhere had a tremendous appetite for these bonds. What we know now is that there are bonds for sale in size. But will that bid come back to provide a floor?”

Squeeze on Turkish banks

Bonds from Turkish banks have continued to get squeezed, a trader said, with Akbank TAS’ 2025s a particular target.

“Plenty of comments from Turkish bankers about how they expect limited senior supply in the sector adding to the squeeze,” he said. “I can’t believe [Turkiye Ihracat Kredi Bankasi AS (Turk Eximbank)] will be the only one.”

Meanwhile, the parliamentary commission on Turkey’s new constitution was set to convene on Thursday, the strategist said.

“All political parties represented in parliament have agreed to join the panel and see a need for a new constitution,” he said. “Yet, their views diverge on the role of the president, which is considered to be the crux of the matter.”

Ukraine bonds sell off

From Ukraine, the sovereign curve has sold off so far this week on the news that the economy minister is resigning, said Fyodor Bagnenko, fixed-income trader with Dragon Capital.

“The initial move was 1 point to 2½ points down, or 40 bps wider across the board, but then some ground was recovered as cautious bids came in later in the afternoon,” he said. “Strong technicals, with not many loose bonds or weak hands are certainly being supportive here. Quasi-sovereign also moved down a point, but trading was very limited there.”

Kuwait companies ponder deals

Kuwait Finance House is considering the issuance of Islamic bonds, a market source said.

The proceeds would be used to boost the company’s capital reserves.

And Kuwait’s Boubyan Bank has received regulatory approval to issue $250 million of Islamic bonds, a market source said.

Other details were not immediately available on Thursday.

The Islamic lender is based in Kuwait City.

© 2015 Prospect News.
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