EM credit notably strong; Lebanon spreads tighten; Petrobras gains; Rio Negro eyes notes

By Rebecca Melvin

New York, Nov. 22 – Emerging credit markets remained notably strong early Wednesday ahead of what was expected to be a quieter tone on Thursday and Friday given the U.S. Thanksgiving holiday.

There was no clear driver for the early strength, in which even Turkey credit improved following a spate of pronounced weakness in recent sessions, strategist Trieu Pham of MUFG Securities wrote in a note.

Lebanon was also notably stronger on Wednesday with spreads tighter across the whole curve but notably tighter in the Lebanon 6% notes due 2019, which were indicated 98¾ bid, 99¾ offered at the market close in London, with the spread tighter by 46 basis points, according to a market source.

Lebanon’s other 2019 note, which has a 5.45% coupon, was 96.62 bid, 97.62 offered with only 11 bps of spread tightening. The Lebanon 6.15% notes of 2020 were tighter by 31 bps, and the Lebanon 6.1% notes of 2022 also improved by 30 bps; while the Lebanon 2023s, 2026s and 2030s each saw more than 25 bps of spread tightening.

Lebanon’s Prime Minister Saad Hariri surprised markets again with news on Wednesday that he is holding off on submitting his resignation at the request of President Michel Aoun. The announcement came after Hariri said on Nov. 4 that he intended to resign while he was out of the country in Saudi Arabia, saying he feared for his life.

Hariri returned to Beirut on Tuesday, and after the announcement on Wednesday, there were public marches and convoys celebrating in downtown Beirut.

The prime minister is the political leader of Lebanon’s Sunni Muslims, which account for about one-third of the population, with Shiite Muslims and Christians accounting for another one-third each. The delicate balance makes Lebanon a natural battle ground for a larger regional power struggle between Shiite Iran and Sunni Saudi Arabia.

On Nov. 4, Hariri said that the atmosphere in Lebanon is currently reminiscent of 2005 when his father, a former prime minister, was assassinated in Beirut. But on Wednesday he said he would comply with the president’s request to postpone resigning until after meetings to discuss the reasons behind the move.

Brazil’s Petroleo Brasileiro SA 6¾% notes due 2041 moved higher in trade on Wednesday, moving above 102 in active dealings from about 100.875 on Tuesday.

But underlying rates moved lower in the afternoon session in New York and stock markets drifted as the U.S. Federal Reserve released the minutes from its Oct. 31 to Nov. 1 meeting. The minutes reflected concern about low inflation but that the central bank was on target to raise interest rates “in the near term” because of the stronger economy. The Federal Open Market Committee is slated to meet one final time this year on Dec. 12 and Dec. 13, when that quarter percent rate hike is widely expected. But given that officials expect inflation to remain below their 2% annual target for longer, it could influence the pace of rate increases next year.

Joining Cemig Geracao e Transmissao SA on the Latin America primary calendar on Wednesday is a deal for Argentina’s province of Rio Negro.

Rio Negro named BofA Merrill Lynch and BBVA Securities to arrange meetings with fixed-income investors pertaining to a potential $300 million offering of seven-year notes (expected rating; /B/), according to a market source on Wednesday.

The meeting were to be held in Buenos Aires, Europe and the United States starting on Friday.

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