EM debt little changed; Rusal eyed after U.S. sanctions relief; Mexico Airport flat to lower

By Rebecca Melvin

New York, Dec. 20 – Emerging markets debt toggled the flat line in light pre-holiday trading on Thursday in a defensive broader market, which saw U.S. equities sell off hard.

The Nasdaq Composite index was down 20% from its peak during the day, it but closed slightly off that level, down 108.42 points, or 1.6%, to 6,528.41 on the day. The Dow Jones industrial average pared early losses but still dropped 464.06 points, or 2% to 22,859.60. And the S&P 500 stock index fell 39.54 points, or 1.6%, to 2,467.42.

Bonds also sold into the market close, sending the yield on the benchmark 10-year Treasury back up to 2.787%, from 2.782% on Wednesday. And U.S. oil prices dropped, with the West Texas Intermediate crude oil price down 4.8% on the day to $45.88 a barrel, which marks a 17-month low.

Federal Reserve Chair Jerome Powell’s statements on Wednesday following a two-day Federal Open Market Committee meeting seemed to add to a wall of worry focused mostly around global economic slowing and U.S.-China trade tensions. Specifically, Powell said that the Fed is penciling in two rate hikes in 2019 and that it expects to continue letting debt drop off its balance sheet in a continuation of normalization, which some worry may be contributing to tightening financial conditions.

The FOMC raised its federal-funds rate to 2.25% to 2.5%, and new projections showed more officials expect the Fed will need to raise rates no more than two times next year. Treasury Secretary Steven Mnuchin aimed to quell investor fears on Thursday by saying that the Treasury is in close contact with the Fed about Treasury issuance and balance-sheet policy.

Also on Wednesday, the FOMC updated its expectations for U.S. growth, pulling it back to 2.3% for 2019 from a previous expectation of 2.5%.

Meanwhile, the 4.85% 2023 notes of Russia’s United Co. Rusal plc, an issue of $500 million deemed the year’s worst deal by one Central and Eastern Europe region market observer, deserved another look on Thursday after the U.S. Treasury announced sanctions relief for Rusal on Wednesday. At the same time, it imposed more sanctions on Russian individuals.

The Rusal bonds cratered in April after the United States imposed sanctions that required U.S. customers to wind down their business with the aluminum company by Oct. 23.

The company had to shut some production under the weight of the sanctions, which were imposed in connection with charges of Russian meddling in the U.S. 2016 elections.

Under the terms of a negotiated settlement between Rusal’s holding company EN+ and the U.S. Treasury, Oleg Deripaska will reduce his holdings in EN+ and a number of other assets, to 44.95%.

Meanwhile, Mexico City Airport bonds were also in focus after Mexico’s Finance Ministry announced that its proposed tender offer and consent solicitation had received “overwhelming support” of the bondholders.

Mexico City Airport Trust said it received early tenders for $4.25 billion, or 70.8%, of the four series of notes, and $4.29 billion, or 71.31%, of consents. Under a revised tender, Mexcat is purchasing up to $1.8 billion principal amount of notes and up to a pro rata principal amount of each series of notes, at par plus interest.

Mexico City Airport’s 3 7/8% notes due 2028 were quoted at 87¼, which was down more than 2 points compared with the previous day’s bid.

Mexico City Airport’s 5½% notes due 2047 were quoted far apart at 88 bid, 92 offered.

Romania’s Social Democrat government on Thursday survived a no-confidence vote related to a controversial judicial overhaul that opposition government leaders say has harmed the rule of law and democracy in the country. Lawmakers voted 161-3 to dismiss the left-wing government, which was much less than the 233 votes needed.

Romania’s 2 7/8% notes due 2029, of which €1.15 billion priced in early October, were quoted at 96.95 which was off from 97.39 earlier in the session.

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