Investor sentiment finishes session strong; bonds take a breather after Thursday’s ‘bonanza’

By Christine Van Dusen

Atlanta, Aug. 28 – Investor confidence ebbed and flowed on Friday morning amid somewhat subdued trading and some profit-taking after Thursday’s major rally.

“Strong tone to begin, but yet again, a bit of an aberration in confidence as we went into lunch,” a London-based trader said. “Europe opened with a little less gusto than yesterday, however, and we saw further profit-taking early afternoon. To close out, the market has bounced back with uniform strength in both equities and rates markets, boosting broad-based appetite for credit.”

Investors seem to be happy to hold risk, ever since China moved to buoy its economy with a capital injection, another trader said. But there’s a lack of conviction to “follow through” as investors wait “for more central bank action to support risk assets.”

Turkey’s bonds were slightly wider, with thin volumes, on Friday morning, he said.

“The same could be said for most [emerging markets] curves,” he said. “There continues to be some activity in Turkey banks and corporate paper, as they had cheapened up recently."

Looking to Asia, bonds from China remained about 3 basis points to 5 bps tighter with some buy interest emerging, another trader said.

“Korean utilities, having seen profit-taking early on, staged a further rally late this afternoon,” he said. “Another 5 bps tighter in the 10-year.”

The Philippines curve was mixed, he said.

At the end of the New York session corporates from China were mixed, wider or tighter by about 3 bps, with buyers seen for energy and utility bonds and sellers for technology, another trader said.

“High-yield was very active today,” he said. “China industrial high-yield was a touch lower.”

Ukraine bonds see buyers

From Ukraine, bonds saw some buying into the end of the week after the sovereign’s debt deal went through, said Fyodor Bagnenko, a fixed-income trader with Dragon Capital.

“Bigger gains in quasi-sovereigns, as the sovereign yield crystalizes as a pricing benchmark, while corporates added 1 point to 3 points,” he said.

Some Lat-Am widens

From Latin America, low-beta spreads widened slightly on a mostly quiet Friday, a New York-based trader said.

Brazil’s five-year credit default swaps spreads finished at 329 bps from 324 bps while Mexico’s ended the day at 142 bps from 140 bps.

“Cash price action was very slow, with levels up a touch,” he said. “Lat-Am high yield moves higher on the day with the rally in oil boosting prices in Venezuela and PDVSA bonds.”

PDVSA’s 2017s closed at 68 from 67.625, and Venezuela’s 2027s ended the session at 39.80 from 39.50.

“Volumes were up a bit from previous summer Fridays,” he said. “The market seems to have stabilized for the time being. Hopes are that we have already carved out a bottom and that we can continue tightening and moving higher.”

Petrobras, Vale in focus

Among Latin American corporates, Brazil-based Petroleo Brasileiro SA tried to tighten off of Thursday’s “bonanza move,” another New York trader said. “But it’s not really working.”

The same was true for Vale SA, he said, which widened 10 bps on Friday afternoon.

Liquidity was thin, he said, and Mexican petrochemical credits were still stabilizing after falling on Tuesday and Wednesday.

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