EM debt weak as yuan drops again; Argentine peso sharply lower, but century bond recovers

By Rebecca Melvin

New York, June 28 – A negative tone in emerging markets credit persisted on Thursday in generally thin trading as another drop in the value of the Chinese yuan against the U.S. dollar and other currency weakness promoted a risk-off tone, according to market sources.

The Argentina peso fell more than 1% on Thursday to about 28.00 to the U.S. dollar, and Argentina’s central bank stepped in to support the currency.

However, some bonds recovered some ground by the end of the session. Argentina’s century bond, for example, was closing round 77.7, which was off the bottom of 76.8 at the low on Thursday and down only 0.3 point compared to an open at 78.

“It recovered all of its losses today. It traded sort of like a V,” said Michael Roche, emerging markets fixed-income specialist with Seaport Global. Nevertheless, the issue that priced exactly a year ago, was trading at record yield.

Liquidity was generally light as the summer holiday period has kicked in amid the general weakness, and there was little primary market activity. However, South Korean steelmaker Pohang Iron and Steel Co. (Posco) announced that it has mandated banks and scheduled a roadshow for a dollar-denominated issue of notes.

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