Emerging market slips as U.S. credit market falls; Ecuador down again

By Reshmi Basu and Paul A. Harris

New York, April 22 - Emerging market debt edged lower in light volume Friday in response to a poor performance by U.S. corporates.

In the primary, Hong Kong's Dah Sing Bank Ltd. priced $150 million of 10-year notes at par to yield Libor plus 60 basis points via Deutsche Bank.

This is the first issue from Asia in the international markets since the Republic of Indonesia priced $1 billion of 10-year bonds (B2/B+/BB-) to yield 7 3/8% on April 13.

EM slips

Trading was thin Friday as investors paid closed attention to the U.S. corporate picture for signals as to the health of the U.S. economy. In recent weeks, emerging markets have focused their attention on corporates after damaging news from the auto sector set off a flight to quality.

"We've been following the credit market in the U.S.," said a buyside source.

"Yesterday [Thursday], the credit market did great so we did great."

But on Friday, U.S. corporates did poorly, resulting in a poor showing by emerging markets, said the source.

A trader said that emerging markets "was a little down, kind of selling off at the end."

He said the session saw typical Friday volumes with a mix of players.

By the time trading wrapped up for the weekend, the Brazil C-bond was bid at 99.812, down 0.313 on the day while the bond due 2040 slid 0.60 to 113¾ bid. The Russia bond due 2030 fell 0.07 to 105.93 bid. The Venezuela bond due 2027 fell 0.40 to 99¼ bid.

"The sell-off at the end of the day was due to the equity market," he said. "We kind of took a turn for the worse there, closing on the lows."

U.S. stocks ended lower as investors locked in gains from Thursday's rally, which was ignited by healthy earnings.

But a spike in oil prices, disappointing earnings and a published report that the United States has warned China that North Korea could be preparing for a nuclear-weapons test were blamed for bringing down sentiment Friday.

The Dow Jones Industrial Average ended the session, down 60.89 points at 10,157.71.

Market sources told Prospect News that the North Korea report had no effect on emerging markets, given that it was published so late in the afternoon.

Ecuador down for third day

Ecuador's bonds fell for the third straight day on concerns that newly sworn in president Alfredo Palacios would abandon a market-friendly agenda. The Ecuador bond due 2012 slid four points to 90¼ bid while the bond due 2030 dropped 3¼ points to 77¼ bid.

The market has not taken kindly to his comments about potentially earmarking more of the oil stabilization fund for social spending, said a source.

The trader added that there is not too much fear that there will be a contagion effect in Latin America because Ecuador is a high-beta credit. There was some concern that Peru and Venezuela would be dragged down.

"Peru and Venezuela are trading together," said the trader.

"Peru and Venezuela are unchanged for the day, which is pretty much in line with the market, so nothing much going on there."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.